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The GBP/USD currency pair resumed its downward movement on Tuesday without any compelling reason. In the morning, business activity indices for the services and manufacturing sectors were published in the UK (and in the European Union), showing unsatisfactory results. In Germany, the European Union, and the UK, business activity declined sharply in June, which could have triggered a fall in both the euro and the British pound. However, we do not believe that the market sold euros and pounds all day based solely on weak business activity. In recent months, the market has ignored 90% of macroeconomic data, and two weeks ago, it paid no attention to the European Central Bank's rate hike. It also ignores the end of the conflict in the Middle East, the opening of the Strait of Hormuz, and the fall in oil prices. We consider the current decline in both major currency pairs illogical and do not attempt to explain it.
From a technical standpoint, the downward trend has resumed, as the market aggressively bought dollars over two consecutive days last week. The area around 1.3179-1.3187 halted the decline of the British currency for several days, but with such bearish momentum, it is unlikely to hold for long. The decline may very well continue for technical reasons. At the moment, there is an obvious trend, so the market may sell the pair on this basis.
In the 5-minute timeframe, no trading signals were generated on Tuesday. Only by the end of the day did the pair reach the 1.3179-1.3187 area. Therefore, trades could only have been opened in the evening in this area. The decline of the British currency may continue at this pace for as long as necessary, but we consider the dollar's rise to be absolutely illogical in recent weeks.
COT reports for the British pound show that, in recent years, commercial traders' sentiment has been constantly changing. The red and blue lines representing the net positions of commercial and non-commercial traders frequently cross each other and are mostly close to the zero mark. Currently, the lines are moving apart, and non-commercial traders still dominate with... sales. Considering the events in the Middle East, it is not surprising that demand for risk currencies is low.
In the long term, the dollar continues to decline due to Donald Trump's policies, as evidenced on the weekly timeframe (illustration above). The trade war will continue in one form or another for a long time, and Trump's policies are aimed directly and indirectly at weakening the American currency. However, geopolitical factors are currently at the forefront, which have recently provided strong support to the dollar. Since the conflict in the Middle East cannot be deemed resolved, the US dollar may still show growth in the future. According to the latest COT report (dated June 9), the "Non-commercial" group closed 7,900 BUY contracts and opened 4,000 SELL contracts. Thus, the net position of non-commercial traders decreased by 11,900 contracts over the week.
On the hourly timeframe, the GBP/USD pair has resumed its downward trend, which does not align with the current fundamental and geopolitical backdrop. However, for three months, the market has ignored both fundamentals and macroeconomics, and now it is ignoring geopolitics and selectively responding to factors. We do not believe that the British pound deserves such a significant decline.
On June 24, we highlight the following important levels: 1.3096-1.3115, 1.3179-1.3187, 1.3301-1.3309, 1.3369-1.3377, 1.3465-1.3480, 1.3588, 1.3671-1.3681, 1.3751-1.3763. The Senkou Span B line (1.3310) and the Kijun-sen line (1.3289) can also serve as signal sources. It is recommended to set the Stop Loss order to breakeven when the price has moved in the correct direction by 20 pips. The lines of the Ichimoku indicator may move during the day, which should be taken into account when determining trading signals.
On Wednesday, no important reports or events are scheduled in the UK or the US. Therefore, traders will not have anything to react to throughout the day. Geopolitical news is no longer affecting market sentiment, and the market is trading based on technical analysis. Thus, the British pound may continue to decline in response to any news.
Today, traders may consider short positions with targets of 1.3096-1.3115 if the pair consolidates below the 1.3179-1.3187 area. Long positions may become relevant after a bounce from the 1.3179-1.3187 area, with a target of 1.3301-1.3309.
Price support and resistance levels are thick red lines near which the movement may end. They are not sources of trading signals.
The Kijun-sen and Senkou Span B lines are Ishimoku indicator lines transferred from the 4-hour timeframe to the hourly timeframe. They are strong lines.
Extreme levels are thin red lines from which the price has previously bounced. They are sources of trading signals.
Yellow lines indicate trend lines, trend channels, and any other technical patterns.
Indicator 1 on the COT charts shows the size of the net position of each category of traders.
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