GBP/USD 1H
The GBP/USD currency pair, as well as the EUR/USD pair, were mostly trading higher on Monday, October 19. The bears also failed to overcome the support area of 1.2858-1.2873, so they gave up their positions, and the pair settled above the descending trend line and reached the resistance area of 1.3006-1.3024.
The price rebounding from this area can trigger a downward movement, despite breaking the trend line. The pound continues to move from side to side. Therefore, there is a high probability that the pound will fall until we overcome the 1.3006-1.3024 area. Moreover, the pair has been mainly trading between these two areas in the last two weeks. Thus, despite the volatility, we can also draw a conclusion about the flat.
GBP/USD 15M
Both linear regression channels turned upward on the 15-minute timeframe, which reflects an unsuccessful attempt to overcome the 1.2857-1.2873 area on the hourly timeframe. However, the bulls need to overcome this area in order to take the pair to the psychological level of 1.3000.
COT report
The latest Commitments of Traders (COT) report on the pound showed that from October 6-12, non-commercial traders continued to mostly close contracts for the British currency, rather than open new ones. The pound sterling increased by around 60 points during this period, which is very small, despite the rather volatile trading within each individual day. During this time, the “non-commercial” group of traders opened 149 Buy-contracts (longs) and closed 6,144 Sell-contracts (shorts).
Thus, the net position of professional traders has grown again, by 6,000 contracts. However, as with price changes, these changes in the mindset of professional traders are purely formal. Moreover, the net position of non-commercial traders is growing for the third consecutive week, which casts doubt on the pound’s succeeding decline, which is much more expected than growth. Even more interesting is the fact that the total number of contracts for the “non-commercial” group has been decreasing in recent months.
That is, large traders do not believe in the pound and do not want to deal with it, whether it is about buying or selling it. The same case with the “commercial” group, which also mainly closes any contracts for the pound. In such circumstances, we would not make a long-term forecast based on the COT report.
No macroeconomic statistics released in the UK on Monday. Prime Minister Boris Johnson did not deliver any speeches either. Nevertheless, market participants are still very nervous. Thus, the pair continues to face quite volatile trading without a definite, pronounced trend, which should be taken into account when opening any positions.
Market participants are now ignoring all key topics. Nevertheless, the epidemiological situation in the UK continues to deteriorate and the pandemic may break out of control in the near future. There is an increase in the number of cases of the disease across the country, as well as in deaths. Doctors estimate the current coefficient of infectiousness of the disease at 1.3-1.5. This means that each patient with coronavirus infects from 1.3 to 1.5 other people.
Recall that a pandemic is considered controllable if this coefficient is less than 1.0. The UK government has been fiercely criticized for its inability to confront COVID-2019, and for demonstrating the priority of the economy over human lives. The Emergencies Science Group recommended a complete quarantine for the UK three weeks ago, but Johnson’s government rejected this proposal.
We have two trading ideas for October 20:
1) Buyers for the pound/dollar pair quickly returned the initiative, but immediately met an insurmountable obstacle on their way in the form of the 1.3006-1.3024 area. Therefore, you can consider long positions once we have overcome the 1.3173 target. Take Profit in this case will be up to 100 points. However, take note of frequent changes in the direction of movement as well as high volatility, so we recommend trading in small lots.
2) Sellers were unable to keep the pair below the downward trend line, so you are advised to not trade down at the moment. If the bears manage to settle below the Kijun-sen (1.2963) and Senkou Span B (1.2950) lines, then we will recommend new sell positions on the pair while aiming for the support area of 1.2857-1.2872 and the 1.2823 level. Take Profit in this case can range from 70 to 100 points.
Explanations for illustrations:
Support and Resistance Levels are the levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Kijun-sen and Senkou Span B lines are lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour one.
Support and resistance areas are areas from which the price has repeatedly rebounded off.
Yellow lines are trend lines, trend channels and any other technical patterns.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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