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GBP/USD - 24H.
The GBP/USD currency pair continued to be in an upward trend during the second trading week of 2021. If the European currency still started a more or less noticeable downward correction this week, the pound sterling once again updated 2.5-year highs. That is, there was a de-correlation of the two main pairs. And only Andrew Bailey's speech could lead to this, as there were no other important events in the UK this week. But more on that below. So far, the pair continues to gradually move up, and the movement even on the 24-hour time frame looks like a "swing". The price regularly rolls down, and the size of the correction often almost coincides with the size of the main movement preceding it. Well, I don't want to talk about the reasons. From our point of view, the British currency is again becoming more expensive solely due to the "speculative" factor. There was no reason for the pound to strengthen so strongly in recent months. Now in the States, of course, not everything is calm, but in the UK everything is frankly bad. Both from an epidemiological point of view and a fundamental one.
The COT report
During the last reporting week (January 5-11), the GBP/USD pair fell by 60 points. Although in general, the pound continues to maintain a steady upward trend. But the changes that the latest COT report showed are really impressive. Recall that the last few reports "differed" with scanty changes that did not allow us to draw any conclusions. Professional traders simply opened very few contracts in the British currency. From our point of view, this behavior of the "Non-commercial" group is quite understandable. For there are few reasons to trade the pound actively, given the news of an epidemiological and economic nature from the Foggy Albion. But in the last reporting week, professional traders opened 10.5 thousand buy contracts and 3.2 thousand sell contracts at once. Taking into account the fact that about 80 thousand contracts were opened before this report, +13 thousand is a lot. Thus, the net position of non-commercial traders increased by 7 thousand at once. Simply put, the mood of the major players has become much more "bullish". Thus, the "technique" and COT reports speak in favor of continuing the upward movement. But how much longer will market participants ignore the fundamental background?
The entire fundamental background for the GBP/USD pair this week was reduced to the speech of the head of the Bank of England, Andrew Bailey. As we said earlier, from our point of view, market participants ignored many negative theses and turned their attention only to the words about the problem of using negative rates. Although a day earlier, a member of the monetary committee, Silvana Tenreyro, said that the Bank of England continues to study the application of negative rates. However, after Bailey's speech, the pound sterling again began to rise in price and at this moment another round of decoupling of the euro/dollar and pound/dollar pairs began. Serious epidemiological problems remain in the UK. Recall that in recent weeks, the number of daily recorded cases of "coronavirus" has increased from 20 thousand to 50-60 thousand. The country continues to remain in the third "lockdown" and this will inevitably lead to a reduction in GDP. However, traders continue to buy the pound. And this is an inexplicable fact. Of course, we can assume that the case is in the US dollar. The situation in the United States is also quite difficult, however, it is difficult from a political point of view. And also recall that the euro currency has been getting cheaper all this week. In general, we can only draw the previous conclusion: market participants still ignore 90% of the fundamental background and macroeconomic statistics. In this situation, it remains only to trade on the "technique".
Trading plan for the week of January 18-22:
1) The price retains the upward trend without any problems and barely began to correct this Friday. The pair can even go down now 200-300 points in the "high-volatility swing" mode, but there is no reason to wait for the end of the upward trend right now. Thus, in the 24-hour timeframe, the target for an upward movement remains at the level of 1.3851. We recommend that you continue to consider options for opening long positions on the higher timeframe as long as the price is above the critical line, and do not try to guess the end of the upward trend.
2) Sellers are still quite weak. Last week, the bears tried to seize the initiative, but it ended with only a minimal pullback. Thus, for the possibility of opening short positions, it is now recommended to wait again, at least, for the price to consolidate below the critical line. If this condition is met, a downward trend may form on the 4-hour timeframe.
Explanation of the illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
Support and resistance areas – areas from which the price has repeatedly bounced.
Indicator 1 on the COT charts – the net position size of each category of traders.
Indicator 2 on the COT charts – the net position size for the "Non-commercial" group.
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