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22.05.2020 09:36 AM
GBP/USD on May 22. COT report. Obstacle at 1.2303 discourages bulls from more buying. Now GBP/USD could drop back to 1.2095

GBP/USD – 1H

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Hi dear traders! On the 1-hour chart, GBP/USD reversed in favor of the US currency and began a gradual decline. Thus, market sentiment again changed into bearish, though the chart has not revealed yet any bearish patterns. The UK releases less news than the EU. The latest news was about a speech of new Bank of England Governor Andrew Bailey. He admitted the scenario of employing negative interest rates. Besides, traders are betting on expansion of QE program by Bank of England. At present, QE is measures at £645 billion. However, the program is expected to be expanded by £100 or even £200 billion in June – July. The British economy urgently needs extra stimulus. The other burning issue is certainly Brexit which has been ruling public sentiment in the UK over the recent 4 years. On the Brexit front, the sterling has no solid fundamentals. The latest round of the talks between London and Brussels ended with a zero result. Both parties expressed discontent with the outcome and confessed the lack of progress.

GBP/USD – 4H

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On the 4-hour chart, GBP/USD was rejected from 50.0% fibo correction at 1.2303 and reversed in favor of the US dollar. On May 22, the currency pair is carrying on falling towards 38.2% fibo correction at 1.2095. Today none of the indicators signals any divergence to appear soon. In case the pair is rejected off 38.3% fibo correction, the door will be open for the price reversal in favor of the sterling. So, the price will resume growth towards 50.0%. If the pair closes below 38.2% fibo correction, this will increase the odds of a further decline towards the next correctional level of 23.6%at 1.1834.

GBP/USD – Daily

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On the daily chart, GBP/USD made a reversal in favor of the British pound and fixed above 38.2% fibo at 1.2174. Thus, the prospects for a further advance of the sterling are indicated on the chart with a longer timeframe. At the same time, two charts with shorter timeframes signal a possible decline of the pair. If the pair closes above 38.2% fibo correction, this move will trigger a decline towards 50.5% fibo at 1.2028.

GBP/USD – Weekly

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On the weekly chart, GBP/USD made a fake breakout of the lower border of the trendline. In other words, before the price is able to trade firmly above this line, the odds are that the pair will continue growing along two upper trendlines but in the long term.

Economic calendar

On Thursday, Markit posted PMIs on the UK manufacturing and service sectors. Business activity in the service sector surged almost twice in May to 27.8. The manufacturing PMI rose 8 points to 40.6.

Economic calendar for US and UK for today:

UK – retail sales with and ex auto fuel are due at 08-00 GMT.

On May 22, traders have already got to know data on the UK retail sales. The report reads that retail sales with auto fuel contracted 22.6% year-on-year and ex auto fuel dropped 18.4% annually. No wonder, today traders are poised to sell the British currency.

COT report (Commitments of traders):

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The latest COT report showed that professional market players decided to increase deals on the sterling. Notably, this strategy concerns both long bets and short bets. This week, large traders felt like opening new short contracts. On the whole, it would be wrong to say that demand for the US dollar is extremely buoyant but demand for the sterling is too low. Apparently, a new COT report, which is due today, is likely to reveal minor changes compared to the previous one. Personally, I foresee a further increase in the volume of short contracts from the Non-commercial group.

Outlook for GBP/USD and recommendations:

It would be a good idea to sell the sterling under the current market conditions with the target level at 1.2095 because the pair has been rejected off 50.0% fibo correction at 1.2303. Long positions on GBP/USD would be reasonable once the pair holds firmly above the level of 1.2303 with the target at 1.2416.

Terms

The Non-commercial group means large market players such as banks, hedge funds, private and institutional large investors.

The Commercial group comprises financial institutions, firms, banks, corporations, companies which buy the currency not for speculative profits but for maintaining their operation and export/import activities.

Non-reportable positions refer to small retail investors who do not make a serious impact on market quotes.

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