GBP/USD 5-Minute Analysis

The GBP/USD currency pair exhibited significant volatility on Monday. The British pound initially rose confidently, almost as if the Bank of England had decided to raise its key interest rate. However, it then declined just as sharply, as if the BoE had suddenly reversed its decision and lowered the rate. This is, of course, a humorous exaggeration, but few anticipated such drastic movements on a day when only one report was published in the UK and another in the US — both of which were second estimates of the December services PMI indices. Notably, the UK PMI was worse than expected, making it unlikely that this would trigger a rally in the pound.

Nonetheless, the rally occurred, likely driven by factors that are not immediately obvious to most traders. Firstly, there might be technical reasons behind this movement. Recall that on Friday, the dollar was expected to rise but didn't, while Thursday witnessed an unusually strong increase in the dollar that seemed unwarranted. Therefore, this pair may have corrected for technical reasons. Secondly, the pound could have been pulled up by the euro. Both of these reasons are not immediately apparent.

There is no denying the correction, but this week features several important reports that could lead to significant growth for the American currency. As a result, the GBP/USD pair may experience fluctuations over the next four days.

On the 5-minute timeframe, several important signals were generated on Monday. However, the second and third signals near the critical line were oddly inaccurate, while the fourth, fifth, seventh, eighth, and ninth signals close to the level of 1.2516 were clearly false. It appears that the pound sterling was not poised to grow at all but merely mirrored the movements of the euro, for which almost all signals were accurate and profitable. In contrast, the pound's movements were influenced by levels and lines that did not align with its behavior.

COT Report

The Commitments of Traders (COT) reports for the British pound indicate that the sentiment of commercial traders has been highly volatile in recent years. The red and blue lines, representing the net positions of commercial and non-commercial traders, frequently intersect and generally hover near the zero mark. On the weekly timeframe, the price initially broke below the 1.3154 level and subsequently moved down to the trendline, which it breached this week. This breach of the trendline strongly suggests that the pound's decline is likely to continue.

According to the latest COT report, the "non-commercial" group closed 3,700 buy contracts and 1,400 sell contracts. As a result, the net position of non-commercial traders decreased by 2,300 contracts over the week.

The current fundamental outlook does not support any long-term purchases of the British pound. The currency seems likely to continue its global downtrend. Consequently, the net position may keep declining, indicating a reduced demand for the pound sterling.

GBP/USD 1-Hour Analysis

On the hourly timeframe, GBP/USD shows a generally bearish sentiment, although a new wave of corrective movement has begun. Currently, there is no strong justification for a sustained rally in the pound, apart from the technical need for occasional corrections. In the medium term, we expect the British currency to continue its decline. This week, the pound may quickly drop back to the 1.2349 level.

For January 7, we highlight the following important levels: 1,2269, 1,2349, 1,2429-1,2445, 1,2516, 1,2605-1,2620, 1,2691-1,2701, 1,2796-1,2816, 1,2863. Senkou Span B (1.2600) and Kijun-sen (1.2478) lines can also be sources of signals. It's recommended to place a Stop Loss at breakeven once the price moves 20 pips in the desired direction. The Ichimoku indicator lines may shift during the day, which should be accounted for when identifying trading signals.

On Tuesday, the UK has no significant data scheduled for release. However, two important reports will come out in the US: the ISM Services PMI and the JOLTs job openings report. While we won't speculate on the actual figures, the market's reaction could be significant. Additionally, Eurozone inflation data will be published in the first half of the day, which could influence the euro and affect the pound's movement.

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.