GBP/USD 5-Minute Analysis

The GBP/USD currency pair experienced a decline on Monday, and unlike the euro, it did not even attempt to make gains during the day. In previous articles, we noted that there was no justification for the British pound to rise on Friday; in fact, it should have been declining. Therefore, we expected a "restoration of fair value" on Monday, which is precisely what occurred. The price returned to the 1.2516 level, influenced by the only significant report of the day—the UK GDP for Q3. This report indicated weaker growth in the British economy compared to the first and second estimates, as well as experts' forecasts. Additionally, the Q2 figure was revised downward in quarterly terms. Consequently, Monday's decline in the British pound was not only anticipated but also entirely logical.

In the medium term, we anticipate further declines. This week, there will be very few news reports, and Wednesday is a holiday. However, the British currency might continue its downward trend, as holidays do not necessarily result in a flat market.

On Monday, the first trading signal was formed only in the evening when the price worked through the 1.2516 level. However, on Friday evening, a sell signal had formed in the 1.2605–1.2620 area, which allowed traders to capture the entire downward move on Monday. Of course, opening trades right before the weekend is not the best practice, but each trader must decide whether they are ready to take such a risk. Those who opened positions based on this signal earned profits.

COT Report

COT reports for the British pound reveal that the sentiment among commercial traders has been consistently shifting over recent years. The red and blue lines, representing the net positions of commercial and non-commercial traders, frequently intersect and mostly hover near the zero mark. Currently, the price first broke through the 1.3154 level and then fell back to the trendline. A price consolidation below the trendline is likely. The first rebound from it (technically, the fourth attempt) was very weak. The chart suggests that the next attempt could be successful, potentially leading to a sharp drop.

According to the latest COT report on the British pound, the Non-commercial group closed 14,500 BUY contracts and 9,000 SELL contracts, reducing the net position by another 5,500 contracts over the week.

The fundamental backdrop still does not justify long-term purchases of the pound sterling. On the contrary, the currency has a real chance of resuming its downward trend globally. For now, the trendline is preventing the pound from further declines. However, if the trendline doesn't allow the price to break lower, another upward move above 1.3500 could occur. But what fundamental reasons currently support such a scenario? After all, the pound cannot continue rising indefinitely without solid grounds.

GBP/USD 1-Hour Analysis

On the hourly timeframe, the GBP/USD pair continues to show a bearish sentiment overall, indicating that the three-week correction has come to an end. Currently, there is no fundamental reason for the pound to rise, apart from the technical necessity to correct occasionally. Although the meetings of the Bank of England and the Federal Reserve could have had a negative impact on the dollar, they ultimately had a detrimental effect on the pound. In the medium term, we anticipate that the British currency will decline further.

On December 24, we would like to highlight the following important levels: 1.2349, 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2691-1.2701, 1.2796-1.2816, 1.2863, and 1.2981-1.2987. Additionally, the Senkou Span B at 1.2708 and the Kijun-sen at 1.2600 can also provide valuable signals. Keep in mind that the Ichimoku indicator lines may change throughout the day, so traders should take this into account when identifying trading signals. It is advisable to set a stop loss to breakeven after the price moves 20 pips in the desired direction to minimize losses from false signals.

On Tuesday, there are no significant events or reports scheduled in the UK. In the U.S., the Durable Goods Orders report will be released, which is important and is essentially the only report of the day. As a result, both currency pairs may still experience active trading today.

Illustration Explanations:

Support and Resistance Levels (thick red lines): Key areas where price movement might stall. Not sources of trading signals.

Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the H4 timeframe to the hourly chart, serving as strong levels.

Extreme Levels (thin red lines): Points where the price has previously rebounded. They can serve as trading signal sources.

Yellow Lines: Trendlines, channels, or other technical patterns.

Indicator 1 on COT Charts: Reflects the net position size of each trader category.