Relevance up to 06:00 2022-03-14 UTC–4
The GBP/USD currency pair has fallen by another 200 points during the current week. We cannot say that there was disappointing news for the British pound this week. On Friday, there were strong statistics on the British economy that were ignored, and on Thursday, strong inflation in the United States was published. From our point of view, only inflation in the US could cause the pair to sell off. But the pound has been falling for most of the week, so we again conclude that geopolitics was in the first place in importance. Unfortunately, the situation in Ukraine is not improving. Mass shelling of cities continues. And all risky currencies and assets continue to decline one way or another, quickly or slowly. This situation may persist for a long time. Of course, if the military conflict continues for a year, this does not mean that the euro and the pound will fall for a year. There will be corrections, there will be rollbacks, and in the end, sooner or later, the process of withdrawing capital from risky assets to safe ones will stop. But for obvious reasons, it is impossible to say exactly when this will happen. Thus, the pair may continue to fall for some time. The technical picture is also more than eloquent now. The price is below all the lines of the Ichimoku indicator, but at the same time, the pound has adjusted at the moment against the upward trend of 2021 by only 40-45%. Recall that the euro/dollar has adjusted by 90%. Therefore, no matter what the fall of the British currency is now, it is generally still weaker than the fall of the euro currency by about two times.
The latest COT report on the British pound showed an increase in the “bearish” mood among professional traders. However, in general, the mood of major players has changed too often in recent months, which is seen by the two indicators in the illustration above. At the moment, the number of open purchase contracts is less than the number of sale contracts by 13 thousand. Although a week ago their numbers were almost the same. We can conclude that the major players cannot now decide on exactly how to trade the pound. Of course, with the beginning of the military operation in Ukraine, a lot has changed for traders and investors. There was outright panic in the markets for several days. But even now, when enough time has passed to calm down, the markets are still excited. In addition, strong demand for the US dollar also affects the movement of the pound/dollar pair, so COT reports do not always reflect what is happening in the market. Although the reports on the British pound are at least a little consistent. The green line of the first indicator (the net position of the “Non-commercial” group) indicates that the major players are starting to look at the sales of the British pound again. And since this line is not far from the zero mark, the pound sterling has a lot to go down. In general, now most factors speak in favor of the growth of the US currency, and COT reports are just one of them. At this time, geopolitics is the most important factor.
Analysis of fundamental events.
The fundamental background in the UK last week was present only on Friday. Reports on GDP and industrial production turned out to be better than forecasts, which could have caused at least a slight increase in the pound. But this did not happen, and for most of the week, the pound fell without any statistics and “foundation”. As we have already said, the most important report was American inflation, which continues to accelerate. However, the same problem exists in the UK, in the European Union, and around the world. Accordingly, it is unlikely that the dollar is getting more expensive against the background of inflation alone. The meetings of the Bank of England and the Fed will be held next week. Most likely, both central banks will raise rates and these decisions may support the pound, as the British regulator will tighten monetary policy for the third time in a row. But if the Fed raises the key rate immediately by 0.5%, the dollar may grow even stronger. If the military conflict in Ukraine continues to escalate, it may also cause a new collapse of the pound sterling.
Trading plan for the week of March 14 – 18:
1) The pound/dollar pair continues its strong downward movement. Now the key level for the pair is 1.2829 (50.0% Fibonacci), on overcoming or overcoming which the prospects of the pound depend. If the overcoming happens, the pound may continue its decline to the level of 61.8% by Fibonacci 1.2491. Sales of the pair in any case now look the most attractive.
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 the pair’s growth, it failed to update its previous local peak. That is, it was just a 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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