GBP/USD 5-Minute Analysis

On Wednesday, the GBP/USD currency pair maintained its upward trend throughout most of the day. It's worth noting that there were no clear reasons for the pound's rise in the first half of the day. The only report released during this time, the UK Services PMI, fell below expectations, suggesting that the British pound should have declined rather than risen. In the second half of the day, the movements became even less logical. The U.S. dollar began to strengthen, despite the fact that the key ISM Services PMI in the U.S. was weaker than anticipated. Therefore, in the afternoon, one would expect the dollar to weaken, but it instead increased.

Considering the euro, we concluded that the movements observed yesterday were entirely illogical. The behavior of the British pound only reinforced this view. Today marks the Bank of England's meeting, and the market has already priced in the expected results. We believe that a logical outcome would be a decline in the pound, as the BoE's position is unlikely to be hawkish. Currently, the movements lack logic, so be prepared for any events.

On the 5-minute timeframe, only one trading signal was formed yesterday. During the European session, the price broke through the 1.2511 level, effectively ending all movement after that. During the American session, the price returned to 1.2511, meaning the long position likely closed at breakeven through a Stop Loss.

COT Report

COT reports on the British pound indicate that the sentiment among commercial traders has been consistently shifting in recent years. The red and blue lines, which represent the net positions of commercial and non-commercial traders, often intersect and remain close to the zero mark. Currently, these lines are near each other, suggesting an approximately equal number of long and short positions.

On the weekly timeframe, the price initially broke through the 1.3154 level before dropping to the trendline, which it subsequently breached. This break suggests that the decline of the pound is likely to continue. However, it's important to note the rebound from the penultimate local low seen on the weekly timeframe, indicating that we might be experiencing a flat market.

The most recent report on the British pound shows that the non-commercial group closed 16,400 buy contracts and 2,900 sell contracts. As a result, the net position of non-commercial traders decreased by another 13,500 contracts over the week, which does not bode well for the pound.

The fundamental backdrop continues to lack support for long-term purchases of the British pound, with the currency facing a real possibility of continuing its global downtrend. Hence, the net position may continue to decline, indicating a further decrease in demand for the pound.

GBP/USD 1-Hour Analysis

On the hourly timeframe, the GBP/USD pair is currently trading in a local uptrend, even though it has broken the trendline. We do not see any fundamental reasons for the pound to appreciate in the long term. However, the short-term trend remains bullish, which suggests that long positions can be considered on lower timeframes. On higher timeframes and in the long run, we do not recommend taking long positions, as the pound's overall position lacks fundamental strength. This week, the pair may experience volatility due to the Bank of England meeting and key U.S. economic data releases. Additionally, there is still little rationale behind the current market movements.

On February 6, we highlight the following important levels: 1.2052, 1.2109, 1.2237-1.2255, 1.2349, 1.2429-1.2445, 1.2511, 1.2605-1.2620, 1.2691-1.2701, 1.2796-1.2816. The Senkou Span B (1.2340) and Kijun-sen (1.2400) lines can also be sources of signals. The Ichimoku indicator lines may shift throughout the day, so keep this in mind when identifying trading signals. It is recommended to set a Stop Loss at breakeven if the price moves 20 pips in the correct direction. This helps protect against potential losses if the signal turns out to be false.

On Thursday, the key events in the UK include the Bank of England's meeting and a speech by Andrew Bailey. These are the only significant events for the day, so all attention will be focused on them. Given that the pound has been steadily rising over the past few days, a decline is anticipated today. However, while the rate decision is 99% priced in, the market reaction will depend on what BoE Governor Andrew Bailey communicates. As a result, movements will hinge on his announcements.

Illustration Explanations:

• Support and Resistance Levels (thick red lines): Thick red lines indicate where movement may come to an end. Please note that these lines are not sources of trading signals.
• Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the 4-hour timeframe to the hourly timeframe. These are strong lines.
• Extreme Levels (thin red lines): Thin red lines where the price has previously bounced. These serve as sources of trading signals.
• Yellow Lines: Trendlines, trend channels, or any other technical patterns.
• Indicator 1 on COT Charts: Represents the net position size for each category of traders.