29.09.202212:15 Forex Analysis & Reviews: Analysis of GBP/USD on September 29. British economy to slow down in Q2 2022

Hi, dear traders! On the 1-hour chart, GBP/USD jumped 30 pips yesterday, but today it again reversed in favor of the US dollar. So, the pair resumed its overall downtrend. Notably, the currency pair is trading on a seesaw this week. In other words, it has been gyrating wildly. The extreme volatility will come to end sooner or later. I expect GBP/USD to trade under normal volatility in the nearest days. Until it happens, the currency pair could make sharp moves, neglecting technical levels. Yesterday, traders were astonished by the bad news from the Bank of England. Earlier, Governor Andrew Bailey said about an imminent recession, further inflation acceleration despite 7 rate hikes, and other economic headwinds. Yesterday, the Bank of England announced that began purchases of long-term bonds with the aim of stabilizing the financial sector. Traders considered the news negative even without digging into details. As a result, the pound sterling plummeted. It recovered in the second half of the day, but it cannot be recognized as the wrong response from forex traders. Today the sterling is extending its fall.

Tomorrow, it could continue its decline towards 1.0355 because the UK will report on its GDP for Q2 2022. The actual data will clear up the matter of whether the UK economy has clipped into a recession. The consensus suggests a minor 0.1% downtick in the UK economic output. Nevertheless, a steeper contraction might follow. Personally, I predict that the British GDP is likely to contract in a few coming quarters due to fundamentals such as aggressive monetary tightening by the Bank of England, the fact that the sterling has been pinned at historic lows, soaring inflation, and the central bank's commitment to fighting against inflation sacrificing economic growth. Even though the US economy might also slow down, it is the sterling that is doomed to weakness. Now let's wait for the geopolitical news on gas leaks with Nord Stream and the referendums on joining some Ukrainian regions to Russia.

On the 4-hour chart, GBP/USD reversed in favor of the US currency after forming a bearish divergence with the CCI indicator. The pair might resume its fall towards 1.1046 which matches the 261.8% Fibonacci level. There is no hope for GBP's rally.

Commitments of Traders (COT):

Sentiment of non-commercial traders was less bearish last week compared to the previous week. The number of long contracts increased by 160 but short contracts dropped by 13,083. Nevertheless, the overall sentiment remains bearish as the number of short contracts still greatly exceeds the number of long contracts. In light of fresh macroeconomic data and the recent events, I'm more skeptical about the bullish momentum of the pound sterling. Large market players are still poised to keep short positions on GBP/USD. Indeed, their sentiment turned less bearish in recent months. At present, we see traders increasing short positions, even though this trend is not reflected in COT reports. The sterling has got stuck in the downtrend. Therefore, it should take a lot of time for traders to change sentiment to bullish. The question is when. The information background now is setting the stage for GBP's protracted weakness.

Economic calendar for US and UK

US: GDP for Q2 2022 (15-30 UTC)

US: initial unemployment claims (15-30 UTC)

On Thursday, the economic calendar contains only two reports on the US economy. Both reports are not of crucial importance. Hence, the information background could be weak today.

Outlook for GBP/USD and trading tips

I would recommend selling GBP/USD if the price closes below 1.1496 on the 4-hour chart with the targets at 1.111, 1.1000, and 1.0729. All these targets have been worked out. It is possible to open new sell positions in case of a new close below 1.0729 on the 1-hour chart with the target at 1.0355. It doesn't make sense to buy the pound sterling.