GBP/USD 5-Minute Analysis
The GBP/USD currency pair experienced a decline of 120 pips on Thursday. However, during the European session, a reversal took place, allowing the British pound to begin recovering. Despite this rebound, it is evident that the pound did not regain most of its losses within the day. Thursday saw a significant drop followed by a minor correction. Notably, there were again no local factors to justify the pound's decline.
As we have pointed out multiple times, this situation is not particularly relevant; the downward trend continues, enabling market participants to sell the pound even in the absence of significant reports or events. Today, the pound could see a significant recovery if the U.S. labor market and unemployment data turn out to be disappointing. However, any recovery would likely be temporary. A quick look at the weekly timeframe indicates that there is still potential for the pound to fall further. On the daily chart, a correction is overdue, as the pair has been in a prolonged and steep decline. Yesterday, the price reached the 50.0% Fibonacci level, suggesting that a correction may occur in the coming weeks. Nonetheless, extremely weak U.S. data would be required to trigger such a correction today. Even if the pound rises to the 1.2800 level in the coming weeks (about 400 pips upward), the downtrend on the daily chart would still prevail.
Trading signals for the pound on Thursday were not ideal but still provided opportunities for profit. The first sell signal, as expected, resulted in a profitable trade, with the price breaking through the 1.2349 level and dropping to 1.2245. Afterward, there was a sharp rebound, leading to consolidation above 1.2349 and prompting the closure of short positions. Two additional buy signals followed, reflecting each other, so only one trade could be executed. Even that trade proved profitable, as the pound rose modestly throughout the remainder of the day.
COT Report
The Commitments of Traders (COT) reports for the British pound indicate that the sentiment of commercial traders has been highly volatile in recent years. The red and blue lines, representing the net positions of commercial and non-commercial traders, frequently intersect and generally hover near the zero mark. On the weekly timeframe, the price initially broke below the 1.3154 level and subsequently moved down to the trendline, which it breached this week. This breach of the trendline strongly suggests that the pound's decline is likely to continue.
According to the latest COT report, the "non-commercial" group closed 3,700 buy contracts and 1,400 sell contracts. As a result, the net position of non-commercial traders decreased by 2,300 contracts over the week.
The current fundamental outlook does not support any long-term purchases of the British pound. The currency seems likely to continue its global downtrend. Consequently, the net position may keep declining, indicating a reduced demand for the pound sterling.
GBP/USD 1-Hour Analysis
On the hourly timeframe, the GBP/USD pair shows a bearish bias, with the latest corrective movement ending quickly. There is currently no reason to expect a sustained rise in the pound, aside from occasional necessary technical corrections. In the medium term, we still anticipate further declines in the British currency.
For January 10, the following key levels have been identified: 1.2269, 1.2349, 1.2429–1.2445, 1.2516, 1.2605–1.2620, 1.2691–1.2701, 1.2796–1.2816, and 1.2863. Additionally, the Senkou Span B line at 1.2481 and the Kijun-sen line at 1.2404 may provide useful signals. It is advisable to set Stop Loss orders to breakeven once the price moves 20 pips in the desired direction. Traders should note that the Ichimoku indicator lines may change throughout the day, and this should be taken into account when identifying trading signals.
While no significant events are scheduled in the UK on Friday, four important reports will be released in the U.S. These include Nonfarm Payrolls, the unemployment rate, average wage levels, and the Michigan Consumer Sentiment Index. Each of these reports is significant, but the majority of market attention will likely focus on the first two. We do not expect the Nonfarm Payrolls and unemployment data to show major disappointments, so we do not foresee a sharp decline in the U.S. dollar. However, as always, data releases can yield unexpected outcomes, and traders should be prepared for all possible scenarios.
Illustration Explanations:
- Support and Resistance Levels (thick red lines): Thick red lines indicate where movement may come to an end. Please note that these lines are not sources of trading signals.
- Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the 4-hour timeframe to the hourly timeframe. These are strong lines.
- Extreme Levels (thin red lines): Thin red lines where the price has previously bounced. These serve as sources of trading signals.
- Yellow Lines: Trendlines, trend channels, or any other technical patterns.
- Indicator 1 on COT Charts: Represents the net position size for each category of traders.
