GBP/USD 5-Minute Analysis
The GBP/USD currency pair experienced a decline on Friday. The German reports had no impact on EUR/USD and were not relevant to the British pound. Consequently, the pound's decline was driven purely by technical factors. The euro settled below the trend line and repeatedly bounced off the upper boundary of the sideways channel on the daily timeframe. Similarly, the pound bounced off the critical 1.2691-1.2701 range and consolidated below the trend line. As a result, both major currency pairs generated nearly identical sets of signals.
From our perspective, the British pound is likely to continue its decline both locally and globally in almost any scenario. Over the past few weeks, the pound has appreciated significantly, which does not align with the weak economic reports from the UK. While the Bank of England has become less dovish than before, this is not guaranteed. Nonetheless, the market has already priced in this shift in monetary policy. The British pound now needs to overcome the Senkou Span B line. This week, macroeconomic data from the U.S. could slow the dollar's ascent, but overall, the dollar remains the market's preferred currency.
On the 5-minute timeframe on Friday, two sell signals were generated in the 1.2605-1.2620 range. In both instances, the subsequent decline was minimal; however, these short positions did not incur any losses. While the pound is not experiencing a sharp drop, it is still on a downward trend.
COT Report
COT reports for the British pound indicate that commercial traders' sentiment has been fluctuating significantly in recent years. The red and blue lines, which represent the net positions of commercial and non-commercial traders, often intersect and generally hover near the zero mark. Currently, they are close to each other, suggesting a roughly equal number of long and short positions.
On the weekly timeframe, the price initially broke through the 1.3154 level and subsequently declined to the trend line, which was also breached. This break of the trend line implies that the pound's decline is likely to continue. However, there was a rebound from the previous local low on the weekly chart, which may indicate a range-bound movement.
The latest COT report on the British pound shows that the non-commercial group opened 500 BUY contracts and closed 4,500 SELL contracts. As a result, the net position of non-commercial traders increased by 5,000 contracts over the week, though this change does not significantly bolster the pound.
The fundamental backdrop still does not justify long-term purchases of the pound, and the currency remains at risk of continuing its long-term downtrend. Therefore, the net position may decline, signaling reduced demand for the British pound.
GBP/USD 1-Hour Analysis
In the hourly timeframe, the GBP/USD pair has completed the uptrend that has formed in recent weeks. This may not be the last trend shift within the broader upward correction on the daily timeframe. However, we still do not see any fundamental drivers for the pound to grow long-term. We would not recommend long positions for higher timeframes and in the long run. Several recent reports have supported the British currency, but the market has already priced them.
For March 3, the key levels to watch are 1.2237-1.2255, 1.2331-1.2349, 1.2429-1.2445, 1.2511, 1.2605-1.2620, 1.2691-1.2701, 1.2796-1.2816, and 1.2981-1.2987. The Senkou Span B (1.2532) and Kijun-sen (1.2640) lines can also serve as sources of trading signals. A Stop Loss should be set to break even once the price moves 20 pips in the right direction. The Ichimoku indicator lines may shift throughout the day, which should be considered when identifying trade signals.
On Monday, the UK and the U.S. are scheduled to release March manufacturing sector business activity indices. These reports are significant for both the pound and the dollar. Additionally, the market may react to Friday's events at the White House. Whether they will be ignored or not remains to be seen, but traders should be prepared for high volatility and unexpected price movements.
Illustration Explanations:
- Support and Resistance Levels (thick red lines): Thick red lines indicate where movement may come to an end. Please note that these lines are not sources of trading signals.
- Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the 4-hour timeframe to the hourly timeframe. These are strong lines.
- Extreme Levels (thin red lines): Thin red lines where the price has previously bounced. These serve as sources of trading signals.
- Yellow Lines: Trendlines, trend channels, or any other technical patterns.
- Indicator 1 on COT Charts: Represents the net position size for each category of traders.
