Trading opportunities on the currency pair: Since the 20th of September, the British pound has shed around 600 pips against the US dollar. The drop started with a pin bar model. From looking at the cycles, I’m expecting the rate to drop to the TR2 trend line or the range from 1.3000 to 1.3016, followed by a recovery to 1.3350 – 1.3490. We should keep the 21st of October and 29th of November in mind for possible reversal dates. From the trend line, I’ll start trying to trade with the trend with targets of 1.3350 and 1.1390. After the 28th of November, I’m expecting a downwards reversal and a breakout of the TR2 trend line.
The last idea on the GBPUSD currency pair was published on the 29th of May. At the time of writing, one British pound was trading for 1.2805 USD. After the UK’s GDP figures for the first quarter were revised downwards, the pound dropped to 1.2775, breaking through the lower boundary of the A-A channel and the TR trend line. In my forecast, I was expecting the rate to drop to 1.2643 in time for the FOMC meeting (13th - 14th of July). It didn’t happen quite the way I expected, but the rate fell to 1.2635 by the 14th of July. After the FOMC meeting, the bullish trend was restored from 1.2589 with renewed strength.
Fig 1. Daily chart. Source: TradingView
According to the latest COT (Commitments of Traders) report, which was published on Friday by the CFTC, large speculators have cashed in on their long and short positions.
Large speculators (Non-commercial): long positions have been reduced by 1,507 to 76,958 contracts, while short positions have dropped by 17,000 to 59,167 contracts. Net long positions for the week increased by 2,216 to 15,573 contracts.
Small speculators (Non-reportable positions): long positions increased by 2,395 to 39,650 contracts. Short positions fell by 435 to 27,695 contracts. Net long positions increased by 2,825 to 11,950 contracts.
From this latest report, we can see that large speculators have abandoned their long positions on the back of the British pound’s slide (possibly due to stop levels being activated) and have taken profit on the short positions opened during the pair’s rally to 1.3657. Conversely, small speculators increased their long positions during the downwards movement; expecting that the pound would resume its upwards trajectory.
Last week, the GBPUSD pair shed 305 pips, reaching 1.3027. The increased probability of a rate hike from the US Fed at the end of the year put pressure on the pound. On Friday, after the payrolls report, the pound/dollar pair closed down. Now, I’m predicting a drop to the TR2 trend line at 1.3000 – 1.3016, followed by a recovery to 1.3350 – 1.3490. It’s difficult to say here just how much ground the pound will recover. For now, 21/10 and 29/11 are the dates to look out for a reversal.
Given the rate at which the pound is dropping; thanks to the bears, the price should get at least as far as 1.2875. If we allow for downwards movement with divergences, it could go as far as 1.2775. I’m waiting for the rate to drop to the trend line, and then I’ll try trading with the trend with targets of 1.3350 and 1.1390.
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Forecasts which are made in the review constitute the personal view of the author. Commentaries made do not constitute trade recommendations or guidance for working on financial markets. Alpari bears no responsibility whatsoever for any possible losses (or other forms of damage), whether direct or indirect, which may occur in case of using material published in the review.
Director of Alpari's analytical department
Senior Alpari analyst
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