GBP/USD 5-Minute Analysis

The GBP/USD currency pair traded cautiously on Wednesday, as the market was reluctant to take risks ahead of the Federal Reserve meeting and Jerome Powell's remarks. We will analyze these events and their implications for the market tomorrow, as sometimes the market reaction can diverge from expected outcomes. It's essential to avoid jumping to conclusions; understanding the market's reaction will help us assess how it interprets the results of the Fed meeting.

Currently, it's important to highlight that the pair broke through the first trendline, which acted as a support. However, the main trendline remains intact, with the price situated quite far from it. As a result, the British pound is still in a short-term uptrend. The pound also failed to consolidate below the Kijun-sen line yesterday, which suggests that any price movements following the Fed meeting could be false breakouts and may not significantly impact the overall technical outlook. There were no notable developments in the UK on Wednesday or throughout the week. The Bank of England meeting is scheduled for next week, which will be important for the future of the British currency.

On the 5-minute timeframe, the movements weren't ideal, and the trading signals reflected this. The initial buy signal turned out to be false, and the pair declined without any significant event or report. A subsequent sell signal was generated after breaking through the 1.2429-1.2445 area and the Kijun-sen line. These three lines should have been viewed together as an area. However, the consolidation below this area did not lead to the anticipated movement. It was likely not advisable to enter the market before the Fed meeting, and both trading signals proved to be false. They could have been filtered out by adjusting the Stop Loss size. In both instances, the Stop Loss would have needed to be placed quite far from the entry point, making these trades less practical.

COT Report

The Commitment of Traders (COT) reports for the British pound indicate that commercial traders' sentiment has fluctuated consistently over recent years. The red and blue lines in the reports, which represent the net positions of commercial and non-commercial traders, frequently intersect and typically remain close to the zero mark. Currently, these lines are near each other, suggesting that the number of buy and sell positions is roughly equal.

On the weekly timeframe, the price initially broke through the 1.3154 level but then retraced back to the trendline, which it successfully breached. This break of the trendline strongly indicates that the decline of the pound is likely to continue. However, there has also been a rebound from the previous local low on the weekly chart, which could point to a range-bound market.

According to the latest COT report, the non-commercial group has closed 4,800 buy contracts and opened 3,800 sell contracts. This resulted in a decrease of 8,600 contracts in the net position of non-commercial traders, which is not a positive sign for the pound.

The fundamental outlook does not provide any justification for long-term purchases of the British pound, and the currency remains at risk of continuing its global downward trend. Consequently, the net position may continue to decline, signaling a further reduction in demand for the British pound.

GBP/USD 1-Hour Analysis

On the hourly timeframe, the GBP/USD pair is currently in a local uptrend. While we do not see any strong reasons for the pound sterling to experience growth in the long term, the short-term trend is upward. Therefore, it is advisable to consider long positions on shorter timeframes. However, for longer timeframes, we do not recommend holding long positions at this time. The pound has already started to decline, and it may continue to do so today and into next week, especially with the meetings of the Fed and the BoE approaching.

As of January 30, we highlight the following key 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, and 1.2796-1.2816. The Senkou Span B (1.2232) and Kijun-sen (1.2409) lines can also be important signals for trading decisions. It is recommended to set the Stop Loss level at breakeven when the price moves 20 pips in the desired direction. Additionally, be aware that the Ichimoku indicator lines may shift during the day, which should be taken into account when determining trading signals.

There are no significant events scheduled in the UK on Thursday; however, the US will release reports on jobless claims and fourth-quarter GDP. The results of the Fed and European Central Bank meetings could also impact the movement of the pound.

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.