GBP/USD 5-Minute Analysis

On Monday, the GBP/USD currency pair initially experienced a sharp and unexpected rise, followed by a substantial decline. The German elections had no connection to the British pound, yet it seized another opportunity to appreciate against the dollar. The pound continues to rise more confidently than the euro and declines slower. In our fundamental reviews, we have already analyzed why this is happening. However, at this point, the upward correction on the daily time frame has reached a sufficient scale, so further growth of the British pound would be considered illogical. For example, on Monday, there was no fundamental reason for the pound to rise. No significant events are scheduled in the UK or the US today. The pound has strengthened too much in recent times.

From a technical perspective, traders do not have a trendline to rely on, as the current movement is highly irregular. However, the euro can be used as a reference: if the euro consolidates below its trendline, a decline in the pound can also be expected. The Bank of England may be less dovish than before, but how long will the market respond to this factor?

Monday's trading signals for the pound were also quite strong. Overnight, the price rebounded near the 1.2691 level with a slight deviation, and sell orders could still be opened at the start of the European session. The price steadily declined throughout the day and eventually reached the 1.2605-1.2620 zone, which also contained the Kijun-sen line. The rebound from this zone allowed traders to close short positions and even consider new long positions. However, we do not believe in a pound rally on Tuesday.

COT Report

COT reports for the British pound reveal that the sentiment among commercial traders has been shifting consistently in recent years. The red and blue lines, representing the net positions of commercial and non-commercial traders, often cross and generally hover around the zero mark. Currently, these lines are once again close to each other, indicating an almost equal number of long and short positions.

On the weekly timeframe, the price initially broke through the 1.3154 level before declining toward the trendline, which it successfully breached. This breach suggests that the pound's decline is likely to continue. However, there was also a rebound from the previous local minimum on the weekly timeframe, which may indicate a flat market.

According to the latest COT report on the British pound, the non-commercial group opened 4,500 buy contracts and 1,800 sell contracts. As a result, the net position of non-commercial traders increased by 2,700 contracts over the week, which does not significantly benefit the pound.

The fundamental background still does not provide any justification for long-term purchases of the pound sterling, and the currency remains at risk of continuing its global downtrend. This suggests that the net position could continue to decline, indicating further weakening demand for the pound.

GBP/USD 1-Hour Analysis

On the hourly time frame, GBP/USD continues its upward trend with almost no pullbacks. This may not be the last trend shift within the broader upward correction on the daily time frame. However, we still do not see any long-term justification for the pound's growth. We would not recommend long positions in higher time frames or the long term. The pound's position is not fundamentally stable.

For February 25, we highlight the following key levels: 1.2052, 1.2109, 1.2237-1.2255, 1.2331-1.2349, 1.2429-1.2445, 1.2511, 1.2605-1.2620, 1.2691-1.2701, and 1.2796-1.2816. The Senkou Span B line (1.2482) and the Kijun-sen line (1.2626) may also serve as signal sources. Setting a Stop Loss at breakeven is recommended once the price moves 20 points in the right direction. The Ichimoku indicator lines may shift throughout the day, which should be considered when identifying trading signals.

No significant events or reports are scheduled in the UK or the US for Tuesday, so strong movements are unlikely. We now expect the pound to decline based on the same technical factors that previously fueled its growth.

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.