Fundamental analysis

Analysis of the trading week of October 24-28 for the GBP/USD pair. COT report. The pound sterling retains high chances of

Long-term perspective.

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The GBP/USD currency pair has grown by 220 points during the current week and is generally moving north more confidently than the EUR/USD pair. Unfortunately, the same strong Senkou Span B line has now got in its way, as in the case of the euro currency. Thus, both main pairs rested against the upper boundary of the Ichimoku cloud, so there is a possibility of a rebound from it. However, in the case of the pound, the last round of growth is already 1300 points, not 550, as for the euro. That is, the difference is more than twice. This week, the pound sterling practically did not fall on Thursday (which is logical since the ECB meeting had nothing to do with the pound), and it even grew a little on Friday. But what will happen next week when the Bank of England and the Fed meetings take place? Of course, one could assume that nothing terrible will happen for the pound since, most likely, both central banks will raise rates by 0.75% synchronously. However, it is impossible to predict how traders interpret this data. Therefore, we recommend starting from the Senkou Span B line now. Overcoming it will significantly increase the likelihood of further appreciation of the pound.

It should also be noted that Rishi Sunak became the new prime minister this week but has not yet made any important decisions, so it is quite difficult to evaluate his work. Therefore, it is naive to conclude that the British currency is growing due to the appointment of Sunak to the post of head of state. Recall that if there had not been the last collapse of 1,000 points due to Liz Truss’ tax initiatives, then most likely, there would not have been a subsequent recovery of 1,100 points. And if you remove these movements, recognizing their random nature, it turns out that the pound has moved away from its 37-year lows by only 200 points. Thus, despite the strong growth of the pound, we urge caution since it is impossible to exclude the possibility that the downward trend will resume.

COT analysis.

The latest COT report on the British pound showed a slight weakening of the “bearish” mood. During the week, the non-commercial group opened 3.2 thousand buy contracts and closed 0.2 thousand sell contracts. Thus, the net position of non-profit traders increased by 3.4 thousand, which is very small for the pound. The net position indicator has been growing slightly in recent weeks, but this is not the first time it has been growing. Still, the mood of major players remains “pronounced bearish,” and the pound sterling maintains a downward trend in the medium term. And, if we recall the situation with the euro currency, there are big doubts that, based on COT reports, we can expect strong pair growth. How can you count on it if the market buys the dollar more than the pound? The non-commercial group has opened a total of 91 thousand sales contracts and 43 thousand purchase contracts. The difference, as we can see, is still very big. The euro cannot show growth in the “bullish” mood of major players, and the pound will suddenly be able to grow in a “bearish” mood. As for the total number of open buy and sell orders, the bulls have an advantage of 18 thousand. But, as we can see, this indicator also does not help the pound much. We remain skeptical about the long-term growth of the British currency, although there are certain technical reasons for this.

Analysis of fundamental events.

During the current week, there were practically no important statistics in the UK. On Monday, the indices of business activity in the services and manufacturing sectors were published, showing another decline below 50.0. Thus, the state of the British economy is now no better than the European one and even more so than the American one. And this is another factor in favor of a new fall in the British pound. In the US, business activity indices are also falling below 50.0. But investors’ attitude to the American economy is still more favorable than the British one. It is perhaps because the Fed rate is twice as high as the BA rate. At least one more important GDP report was released in the States. After two disastrous, negative quarters, growth of 2.6% followed in the third, which is good news. This growth makes it possible for the Fed to painlessly raise the key rate by 0.75% next week for the fourth time in a row.

Trading plan for the week of October 31 – November 4:

1) The pound/dollar pair as a whole maintains a long-term downward trend but is located above the critical line. Therefore, small purchases can now be considered if the Senkou Span B line is overcome. There are some reasons for the growth of the British currency, but there are still many reasons for the resumption of the fall. Be careful with your purchases.

2) The pound sterling has made a significant step forward but remains in a position where it is difficult to wait for strong growth. If the price fixes below the Kijun-sen line or bounces off Senkou Span B, the pair’s fall can quickly and cheerfully resume with targets of 1.0632–1.0357.

Explanations of the illustrations:

Price levels of support and resistance (resistance/support), Fibonacci levels – targets when opening purchases or sales. Take Profit levels can be placed near them.

Ichimoku indicators (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5).

Indicator 1 on the COT charts is the net position size of each category of traders.

Indicator 2 on the COT charts is the net position size for the “Non-commercial” group.

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


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