Fundamental analysis

Analysis of GBP/USD on October 26. GBP rises amid EUR rally

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Hi everyone! On the 1H chart, the GBP/USD pair rose to 1.1480 on Tuesday. Today, during the European trading session, it climbed to 1.1684. Thus, the pound sterling has recovered by more than 1,200 pips after its collapse to 1.0350. Currently, the British currency is moving up solely amid a strong upward movement of the euro. As I have already said, there were no reports or events this week that could attract new EUR or GBP bulls.

The election of a new US Prime Minister helped the pound sterling regain momentum. It had been constantly declining when Liz Truss was at the helm. However, political reshuffles occur quite often in the UK. So, traders are unlikely to closely follow them. In my opinion, there is a trend reversal in the market. Investors have been willing to buy only the US dollar for several months. However, now, they are also prone to open long positions on the pound sterling and the euro. Thus, there have been no fundamental factors for the growth of the euro and the pound sterling this week. This is rather a positive signal which may indicate the resumption of an upward movement. If speculators are ready to buy the euro and the pound sterling despite the lack of fundamental factors, a strong and prolonged rally of the US dollar may soon be over.

Some fundamental factors may change the market sentiment again. It is quite hard to predict how the geopolitical conflict will develop, how significantly relations between the West and Russia will worsen, and what consequences the UK, the EU, the US, and Russia may face. Traders have already prices in all the Fed’s interest rate hikes. The Bank of England and the ECB could raise their rates for a long time because inflation in both countries has not slowed down. soars to new all-time highs every month.

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On the 4-hour chart, the pair managed to climb to 1.1496, canceling the bearish divergence. It may touch 1.1709, the Fibo level of 161.8%. If the price retreats from this level, there could be a slight decrease. The main task is to grow to 1.1111 and settle above the downtrend corridor.

Commitments of Traders (COT):

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Over the past week, the non-commercial traders became more bearish on the pair than the week earlier. Traders closed 8,651 long positions and opened 3,390 short ones. However, the overall sentiment of large market players remains bearish as short positions still exceed the long ones. Therefore, institutional traders prefer to sell the pound sterling even though their sentiment has been slowly changing towards bullish in recent months. However, this is a slow and lengthy process. The pound sterling may continue its uptrend only amid strong fundamental data which has not been so favorable lately. I would like to point out that although the sentiment of the euro trades has become bullish, the euro is still depreciating against the US dollar. As for the pound, even COT reports do not favor buying the pair.

Economic calendar for UK and US:

US- New Home Sales (14:00 UTC).

Today, there is only one crucial economic report. However, traders are likely to pay zero attention to it. They are willing to buy the pound sterling even ahead of the report. The impact of the fundamental factors on market sentiment will be low today.

Outlook for GBP/USD and trading recommendations:

It is recommended to open short positions on the pound sterling if it retreats from 1.1709 on the 4H chart with the target level of 1.1496. It is better to open long positions with the target level of 1.1709.

The material has been provided by InstaForex Company – www.instaforex.com


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