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Good day, dear traders! According to the hourly chart, GBP/USD reversed to the upside, showed a strong increase, and closed above the level of 1.2546 on Thursday. The upward movement may continue towards the level of 1.2623. The ascending trendline indicates bullish sentiment, but the fundamental backdrop is neither in favor of the dollar nor the pound.
Yesterday started with a weak rise in the pound and ended with a significant decline in the dollar. The report on initial jobless claims revealed a drop of 40,000, worse than traders had expected. Consequently, the dollar tumbled in the second half of the day. In my opinion, the market was ready to buy the instrument even without the report. It simply provided additional support. Today, however, no macro releases are scheduled for release. The FOMC meeting will take place next week where interest rates will probably be raised once again.
Currently, there is no consensus on the Fed's rate. In general, we may assume that the interest rate will be lifted one more time in June or July. Even FOMC members do not know when exactly this will happen. The market's opinion on the matter is also unclear. With the pound and the euro eager to rise, we may argue in favor of a pause by the Fed in June. However, further growth of both currencies will require new fundamental developments. The current situation in the European and British economies is not strong enough for their currencies to show a significant increase.
On the 4-hour chart, the pair consolidated above the Triangle, suggesting a bullish continuation towards the 100.0% Fibonacci level of 1.2674. However, today there is an imminent bearish MACD divergence, which could trigger a bearish reversal and a decline towards the level of 1.2441. Divergence has not fully formed yet and may be stopped.
Commitments of Traders (COT):
The sentiment of non-commercial traders has become more bullish over the last reporting week. The number of long positions increased by 1,117 and that of short positions dropped by 529. Overall, the sentiment of large traders remains bullish. For a long time, it has been bearish. The number of long and short positions is now almost equal – 70,000 and 57,000 respectively. The pound sterling has enough growth potential but the fundamental backdrop is favorable neither for the US dollar nor the pound sterling. The latter has been bullish for a long time. The net position of non-commercial traders has been rising for a long time. It remains to be seen whether the British currency will climb on the same drivers. I believe we should not expect the upward movement to resume any time now.
Macroeconomic calendar:
No macro releases are due on Friday. The fundamental backdrop will have no impact on trader sentiment.
Outlook for GBP/US:
We may sell after the price closes below 1.2546 on the 1-hour chart, with targets at 1.2470 and the trendline. There has been a possibility to buy after the close above 1.2470, with the target at 1.2546. Quotes have reached the target. We can hold long positions as long as the price close below 1.2546.
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