GBP/USD 24H chart
At the end of the trading week, GBP/USD continued its steady uptrend and advanced by another 160 pips. Traders keep buying the pound sterling despite all the uncertainties in the UK. The pair bulls managed to send the price to the level of 40 without much effort and with no signs of an upcoming correction. The next upward target is seen at the resistance level of 1.4129 which is the last one for the month of February. We would like to note the unusual nature of the current movement. First, there have been no pullbacks in the past few weeks. We have already compared the trajectories of the euro/dollar and the pound/dollar pairs. As a rule, the two pairs move in almost the same direction if they are influenced by global fundamental factors. The pound sterling, on the other hand, was first swinging in high-volatility mode. Then, the volatility decreased, and the pair is simply moving upwards without any pullbacks. The euro was going through a correction throughout January, while the pound sterling avoided this stage.
Secondly, it is hard to say exactly what drives the pound. The UK currency has been under pressure for all four years of Brexit. What could be the possible reason to send the pound rallying in recent months? Obviously, the Brexit problems have not been resolved. Is the British economy recovering faster than the American one? It is not. Over the past 11 months, the British currency has moved up by 26 cents. This is a very strong movement given that the injection of huge amounts of money into the US economy seems the only possible reason for it. However, even this factor is not enough to explain the extremely high demand for the pound. Thus, we are inclined to believe that the pair is influenced mainly by a speculative factor. The sterling is becoming more expensive simply because more and more traders are joining the trend, trying to gain on it.
COT report
For the trading week of February 9-15, GBP/USD advanced by 160 pips. In the previous weekly review, we said that the pound was gradually rising and was not rushing to the upside. Now, however, we can say that it is rapidly moving upwards. The latest COT report for GBP was more or less neutral. Yet, we could still notice the prevalence of the bullish sentiment. The first indicator on the chart clearly shows how the green and red lines have been moving away from each other in recent weeks. Over the last reporting week (the COT report comes out with a three-day delay), the non-commercial group of traders opened 369 long contracts and closed 3,300 short contracts.
Thus, the net positions of non-commercial traders have increased by almost 4,000. Consequently, the market sentiment has become even more bullish. In total, professional traders have 62,000 long contracts and 36,000 short contracts open. So, there is one and a half difference between the numbers of contracts recorded in recent weeks. In comparison, the difference is almost three times between the numbers of long and short contracts for the euro/dollar pair. At the same time, its upward movement is much weaker. Thus, even the COT report proves that such a strong bullish trend on the pound is unjustified. Nevertheless, the uptrend persists, and you should continue to trade upwards.
During the week, there was no important fundamental news in the UK. Neither Boris Johnson nor Rishi Sunak or Andrew Bailey made any statements. All the attention was focused on the coronavirus and the labor market that has been a great cause for concern lately. On the coronavirus front, the situation is rather controversial. On the one hand, the number of daily recorded cases has decreased from 70,000 to 12 - 13,000, according to the data from Johns Hopkins Institute. This is definitely great news. Also, about 15 million UK citizens have already been vaccinated. This makes the UK a leading country in terms of vaccination progress.
On the other hand, several new strains of coronavirus were discovered in the UK in 2021 alone. These new types of the virus are said to be much more contagious, deadly, and resistant to existing vaccines. Against this backdrop, the future development of the coronavirus spread is very unclear. The UK may have to announce the fourth lockdown in 2021. As for the labor market, the government programs to support businesses will end in March. So, private entrepreneurs have already warned about a wave of layoffs unless the government comes up with new financial aid. Therefore, Boris Johnson and Rishi Sunak will need to launch new support programs in March. Otherwise, the unemployment rate will soar and the UK economy will collapse.
Trading plan for the week of February 22 - 26:
1) The pound/dollar pair maintains an upward momentum without much effort. On the 24-hour timeframe, the key targets remain at the resistance of 1.3943 and 1.4129, as well as the level of 1.4129, which can be reached in the near future. We still do not recommend counting on the trend reversal. The fact that the pound has been rising for so long and is already overbought is not enough to start selling amid a strong uptrend.
2) Bears are still extremely weak, while bulls are holding control over the market. Recently, bears have been so weak that they were unable to develop a correction. On H24, there is not a single sign of a bearish trade. You can consider going short on H1 and H4 timeframes when a downtrend is being formed. However, you need to be very careful. If the price consolidates below the Kijun-sen line on H24, you can consider opening short positions in small volumes with the target at 1.3513.
Notes for the pictures:
The resistance/support levels are the target levels when opening long/short positions. You can place take profit levels next to them.
Indicators Ishimoku, Bollinger bands, MACD
Areas of support and resistance are the ones from where the price has rebounded or has been rejected a few times.
Indicator 1 in the COT charts is a size of net positions for each category of traders.
Indicator 2 in the COT charts is a size of net positions for the non-commercial group.
The material has been provided by InstaForex Company - www.instaforex.com