According to the hourly chart, the GBP/USD pair increased to the corrective level of 523.6%-1.2146 on Monday, followed by a rebound and reversal in favor of the US dollar. Already today, a significant decline has begun in the direction of 1.1933. As I stated in the euro/dollar analysis, the business activity index could not have affected the sentiment of traders to the extent that the pair dropped 140 pips in two hours. The same can be said for the pound dollar. The final value of the PMI business activity index for the service sector in the United Kingdom for June has also been revealed today; it was higher than the preliminary figure. In this instance, the dollar should have been sinking, not increasing. After realizing this, it becomes clear that European and American statistics have little to do with this morning's foreign exchange market decline. It turns out that the dollar's strong appreciation began for very different reasons. Who are they? Yes, the most basic ones.
Examine the 4-hour or daily charts, and everything will become evident. The negative trend has persisted for a long time; in recent weeks, the British and Europeans have attempted to reverse this tendency, but they have failed again. Thus, after a brief break, traders resumed the operations that had generated profits in recent months: selling the euro and the pound. It is the complete explanation. I expected the significant action to repeat closer to the end of the week when crucial nonfarm payrolls and unemployment rates would be reported in the United States, but most traders made their own decisions.
Moreover, it is also probable that we are currently observing a reaction to the upcoming payroll report. There is a chance that this report will be positive, so dollar purchases are rational now. However, such activities by speculators are difficult to predict.
On the 4-hour chart, the pair executed a new reversal in favor of the US dollar and is returning to the 1.1980 level. The comeback of quotes from the level of 1.1980 will benefit the British pound and signal the start of a new upward trend toward the corrective level of 127.2%-1.2250. Fixing the pair's exchange rate below 1.1980 will increase the likelihood of a further decline in the direction of the next Fibonacci level of 161.8% (1.1709). Today, no indicator has any divergences in the works.
Report on Commitments of Traders (COT):
Over the past week, the sentiment of "Non-commercial" traders has become slightly more "bullish." The number of long contracts held by speculators climbed by 6,714, while the number of short futures declined by 3,415. Thus, the general sentiment of the key participants remained unchanged at "bearish," and the number of long contracts continues to outnumber short contracts by a factor of three. Most major players continue to shed pounds, and their mood has not changed significantly recently. Consequently, I believe the British pound could continue to drop over the next few weeks. A significant disparity between the number of long and short contracts may signal a trend reversal, but the context of the information is currently of greater importance to key players. And it continues to be against the pound. To date, it makes no sense to dispute that speculators sell more than they purchase.
News calendar for the United States and the United Kingdom:
UK - index of service sector business activity (08:30 UTC).
Tuesday is a nearly vacant day for economic events in the United Kingdom and the United States. One report has already been released in the United Kingdom, and nothing else. Thus, the information background will not affect the sentiment of traders today. However, the British do not require this influence now.
GBP/USD prediction and trader recommendations:
On the hourly chart, I suggested selling the British pound when it rebounded from the level of 523.6% (1.2146) with a goal of 1.1933. I recommend purchasing the British pound when the price closes above the trend line on the 4-hour chart with a target of 1.2674.
