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Analysis of the trading week of March 21-25 for the GBP/USD pair. COT report. The pound can still make a powerful upward

Relevance up to 05:00 2022-03-28 UTC–4

Long-term perspective.

The GBP/USD currency pair tried to continue the upward correction cycle during the current week. But, as can be seen from the illustration above, it was not possible to continue the growth, and it was not even possible to overcome the critical Kijun-sen line. Therefore, at this time, the pound sterling can only dream of growth prospects. During this week, the pound showed several illogical and irregular movements. One inflation report caused a strong movement both on Tuesday and Wednesday. However, as a result, the pound/dollar pair is still located below the Kijun-sen line. We believe that the growth of the British currency can continue from a technical point of view. If you look at all the turns of the upward correction over the past year, it is visible that each of them was equal to 70-90% of the previous round of the downward movement. In other words, all the corrections and pullbacks were very deep. The Kijun-sen and Senkou Span B lines have been overcome during almost every upward pullback over the past 14-15 months. Thus, we may see something similar in the coming weeks. However, it should be recalled that over the past month a new factor has appeared on the market that may disrupt the current technical picture. This is a factor of geopolitics. The pound sterling in opposition to the dollar still looks twice as resistant as the euro currency. However, it is also a risky currency, unlike the dollar, and the way Boris Johnson is crucified in his “anti-Russian” rhetoric can lead to a serious conflict between the Russian Federation and the UK. In general, although the “foundation” is more favorable to the pound than to the euro, still the British currency can resume falling against the dollar. The Kijun-sen line remains a landmark. Overcoming it will allow the pound to grow by another 150-200 points.

COT analysis.

The latest COT report on the British pound showed a new strengthening of the “bearish” mood among professional traders. However, in general, the mood of the major players has changed too often in recent months, which is seen by the two indicators in the illustration above: they are constantly changing the direction of their movement. At the moment, the number of open purchase contracts is less than the number of sales contracts by almost 37 thousand. Although three weeks ago their number was almost the same. Thus, the “Non-commercial” group has dramatically changed its mindset, but at the same time, it is still not possible to draw any medium-term conclusions now. First, as already mentioned, the mood of major players changes too often, so it is impossible to identify any trend. Second, at this time, not only does the demand for the pound, which is displayed in the COT reports, matter, but also the demand for the dollar. Third, the geopolitical factor can have an unexpected and sudden impact on the movement of the pound/dollar pair. Therefore, at this time, we can assume a new medium-term fall of the British pound without COT reports. The pound may even rise by 200-300 points at first as part of the next round of correction, and only after that, it will rush down again. During the reporting week, non-profit traders reduced their net position by 8 thousand contracts.

Analysis of fundamental events.

The fundamental background in the UK this week was expressed by only one important report – on inflation. As we have already said, this report provoked a strong growth of the British currency on Tuesday, that is, a day before its publication. And on Wednesday, when it finally came out, it provoked the reaction of traders that was contrary to its essence. In general, the pound sterling showed impressive somersaults on Tuesday and Wednesday. And on Thursday and Friday, I was already standing in one place, because important macroeconomic information has ended, and market participants are now clearly not ready to respond to data on business activity or applications for unemployment benefits. We believe that both the euro and the pound may take a break for a while. Still, the last month has been very strong in terms of movements and volatility. Perhaps, as the tension in the Ukrainian-Russian conflict subsides (but the fighting does not stop), the market will be ready to rest for a week or two. Or, at least, wait for new important events. A lot now depends on the escalation or de-escalation of the conflict in Ukraine.

Trading plan for the week of March 28 – April 1:

1) The pound/dollar pair continues to adjust, but so far the correction is quite weak. Now the key level for the pair is 1.2829 (50.0% Fibonacci), on overcoming or overcoming which the further long-term prospects of the pound depend. However, it still needs to be reached. So far, the pair have set their sights on the critical Kijun-sen line but failed to work it out in two weeks. If it is not overcome, then the fall of the British currency will resume with the goal indicated above.

2) But the prospects for an upward movement have deteriorated significantly and so far there is not a single reason to buy the pound. This is indicated by the technique since even during the last round of growth, the price failed to update its previous local peak. That is, it was just a strong round of correction, after which the main movement resumed. And the departure of quotes below the previous local minimum indicates just the preservation of the downward trend. Therefore, purchases are not relevant now.

Explanations to 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.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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