Analysis of GBP/USD 5M
The GBP/USD currency pair also continued its upward movement on Tuesday, approaching the descending trendline and the Senkou Span B line. Thus, the downward trends for both the euro and the pound may be canceled today. The dollar has fallen for two consecutive days without any apparent reason, which is encouraging. It is worth noting that the American currency lacks solid reasons for long-term growth, aside from the geopolitical factor, which could still come into play. However, in recent days, the war in the Middle East has been free of obvious escalations, so the markets have calmed a bit and adjusted to the new objective reality. As a result, the dollar is slowly losing its only support.
From a technical standpoint, the downward trend persists, and ahead is the Fed meeting, where the US central bank is likely to tighten its stance towards monetary policy. Experts expect inflation to accelerate following the outbreak of war in the Middle East, driven by rising energy prices. Thus, inflation is once again at the forefront of the Fed's attention, although one cannot be 100% certain, as the labor market showed disappointing results in February, just as the US economy did in the fourth quarter. However, the last months of Jerome Powell at the helm of the Fed will undoubtedly pass with the status quo being maintained.
On the 5-minute time frame, three trading signals were generated yesterday. At the beginning of the European trading session, the pair settled below the level of 1.3307, but managed to move down by only 25 pips. The sell trade brought neither loss nor profit. Then the price settled above the level of 1.3307, allowing the opening of long positions. A few hours later, the Kijun-sen line was executed, where profits could be taken. The bounce from the critical line turned out to be false.
COT Report
The COT reports for the British pound show that commercial traders' sentiment has been changing steadily in recent years. The red and blue lines, which represent the net positions of commercial and non-commercial traders, regularly cross each other and are mostly close to the zero mark. Currently, the lines are moving apart, with non-commercial traders still dominating with... sales. However, considering the events in the Middle East, it is no longer surprising that demand for riskier currencies is falling while demand for the dollar is rising.
In the long term, the dollar continues to decline due to Donald Trump's policies, as shown in the weekly time frame (illustration above). The trade war will continue in one form or another for a long time, and the Fed will lower rates in the next 12 months regardless. Demand for the dollar will decline one way or another. However, geopolitical factors are currently at the forefront, providing strong support for the American currency. According to the latest COT report (dated March 10) for the British pound, the "Non-commercial" group closed 10,200 BUY contracts and opened 1,200 SELL contracts. Thus, the net position of non-commercial traders decreased by another 11,400 contracts over the week.
Analysis of GBP/USD 1H
On the hourly time frame, the GBP/USD pair could have long ago switched to forming an upward trend, but geopolitics continues to pull the British pound down. Despite a strong decline in the pair in February-March, we still view it as a correction. The daily time frame confidently signals the preservation of an upward trend. Unfortunately, geopolitics is very unpredictable and can overshadow all other factors. However, the pound is now close to the start of an upward trend.
For March 18, we highlight the following key levels: 1.3096-1.3115, 1.3201-1.3212, 1.3307, 1.3369-1.3377, 1.3437, 1.3533-1.3548, 1.3615, 1.3671-1.3681, 1.3751-1.3763. The Senkou Span B line (1.3380) and the Kijun-sen line (1.3328) may also be sources of signals. It is recommended to set the Stop Loss at breakeven when the price moves in the correct direction by 20 pips. The lines of the Ichimoku indicator may shift throughout the day, which should be taken into account when determining trading signals.
On Wednesday, there are no significant events or reports planned in the UK, while in the US, the PPI index will be released, and the Fed meeting will take place. The Fed meeting may become the event drawing traders' attention, apart from geopolitics.
Trading Recommendations:
Today, traders may open short positions targeting 1.3307 and lower if the pair settles below the critical line, or if it rebounds from the area of 1.3369-1.3377. Long positions will become relevant with targets at 1.3412, 1.3437, and 1.3533 if the price surpasses the 1.3369-1.3377 area.
Explanations for Illustrations:
Price levels of support and resistance (resistance/support) – thick red lines, around which movement may conclude. These are not sources of trading signals.
Kijun-sen and Senkou Span B lines – lines from the Ichimoku indicator transferred to the hourly time frame from the 4-hour. These are strong lines.
Extremum levels – thin red lines, from which the price has previously bounced. These are sources of trading signals.
Yellow lines – trendlines, trending channels, and any other technical patterns.
Indicator 1 on COT charts – the size of the net position of each category of traders.
