Analysis of the trading week of May 30 - June 3 for the GBP/USD pair. COT report.

Long-term perspective.

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The GBP/USD currency pair has fallen by 150 points during the current week. The British currency, unlike the euro, did not even have time to gain a foothold above the critical line. Therefore, at the moment, it is impossible to conclude about the beginning of a new upward trend. It should be noted that the technical patterns of the euro and the pound are now almost identical, especially in the last few weeks. Both European currencies showed a purely technical correction, which was practically not supported by "macroeconomics" or "foundation". We have already said earlier that if anyone now has a real reason for growth against the dollar, it is the pound sterling. After all, the Bank of England has raised the key rate four times and at the moment it is equal to the Fed rate. But the market cheerfully ignored this fact at the time when the British regulator raised the rate, so now the growth of the British currency cannot even be linked to this fact, since the euro showed growth in the same period, although the ECB takes a much more passive position. Thus, we are also inclined to the point of view that the pound has simply technically adjusted and, therefore, now has every reason to resume the downward trend. It is not a fact that everything will be exactly like this, but we recall that the factor of the Fed rate hike is very strong, so theoretically it can support the dollar all the time while the US regulator tightens monetary policy. Recall that the Central Bank rate is not just numbers. They are linked to the cost of borrowing and deposits, and the rates of government bonds in the country. The higher the Central Bank rate, the more money flows into the bond market, and the more deposits are opened. The higher the Fed's rate in relation to the ECB, the more profitable it is to purchase American treasury bonds, rather than European ones. As a result, the demand for the dollar is growing, because you can't buy American treasuries for euros. That's the whole mechanism.

COT analysis.

The latest COT report on the British pound showed minimal changes. During the week, the Non-commercial group opened 4.8 thousand buy contracts and closed 1.4 thousand sell contracts. Thus, the net position of non-commercial traders increased by 6.2 thousand, for the first time in a long time. The net position has been falling for 3 months, which is perfectly visualized by the green line of the first indicator in the illustration above or the histogram of the second indicator. Therefore, one increase in this indicator hardly unambiguously indicates the end of the downward trend in the pound. The Non-commercial group has already opened a total of 105 thousand sales contracts and only 31 thousand purchase contracts. Thus, the difference between these numbers is already more than three times. This means that the mood of professional traders now remains "pronounced bearish". Note that in the case of the pound sterling, the data from the COT report very accurately reflect what is happening in the market: the mood of traders is "very bearish", and the pound has been falling against the US dollar for a long time. In the last few weeks, the pound has shown growth, but even in the illustration in this paragraph (daily TF), this movement looks very weak. Since in the case of the pound, the COT report data shows the real picture of things, we note that a strong divergence of the red and green lines of the first indicator often means the end of the trend. Therefore, formally, now we can count on a new uptrend. However, weak geopolitical, fundamental, and macroeconomic backgrounds for European currencies may put pressure on these currencies again.

Analysis of fundamental events.

There was not a single interesting event in the UK this week. Only the indices of business activity in the service and manufacturing sectors, which, as you understand, attracted a little attention from market participants. Therefore, traders closely followed the American statistics, which were also few. The really important reports were published only on Friday. The number of non-farms in May increased by 390 thousand with a maximum forecast of 325 thousand, the unemployment rate rose from 3.5% to 3.6%, and wages increased by 0.3% every month, which is only slightly lower than forecasts. Thus, in general, we consider this package of statistics to be positive for the dollar, so it is not surprising that it managed to strengthen its position on Friday. And the British currency is becoming more and more difficult to resist the onslaught of bears. In a sense, the new week will be decisive for the euro currency. Both are now close to their Ichimoku clouds. They must either be overcome or rebound. In the first case, both currencies will have the opportunity to continue growing against the US dollar.

Trading plan for the week of June 6-10:

1) The pound/dollar pair continues a slight correction with the aim of the Ichimoku cloud. Note that the last price value of the Senkou Span B line (the leading line) is approximately the same as the last local maximum of the price. Therefore, a "rebound in advance" may well happen, after which the downward trend will resume (the same applies to the euro currency). It can also be with "overcoming in advance". In any case, now you need to very carefully monitor the Senkou Span B line and the behavior of the price near it. It will be possible to buy a pair very carefully if the Ichimoku cloud is overcome.

2) The prospects for the British currency remain rather vague and so far the probability of a resumption of the fall is higher than the continuation of growth. We believe that if the pair consolidates below the critical line, it will be a powerful signal for new sales with a target level of 1.2080 (76.4% Fibonacci).

Explanations of the illustrations:

Price levels of support and resistance (resistance /support), Fibonacci levels - target levels 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 - the net position size of each category of traders.

Indicator 2 on the COT charts - the net position size for the "Non-commercial" group.


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