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On the hourly chart, the GBP/USD pair rallied to the 127.2% Fibonacci retracement level at 1.3003 on Tuesday, encountering two rejections at this level. As a result, a reversal in favor of the U.S. dollar was executed, initiating a downtrend towards the 1.2931 and 1.2865 levels. At present, the decline remains weak, but bears may gain momentum this evening and tomorrow. A break above 1.3003 would favor the British pound, enabling bulls to push towards 1.3151.
The wave structure remains clear. The last completed downward wave failed to break the previous low, while the most recent upward wave breached the previous peak. This confirms the continuation of a bullish trend. The British pound has demonstrated excessive strength recently, despite a lack of strong fundamental support. Most traders hesitate to buy the dollar, regardless of economic data, due to Donald Trump's ongoing tariff implementations, which are expected to weaken U.S. economic growth in the future.
Tuesday's fundamental backdrop was not entirely in favor of the bulls. I believe the three U.S. economic reports could have already benefited bears. However, traders are awaiting decisions from two central banks before initiating a new move. Should we expect support for the U.S. dollar today and tomorrow? In my view, yes. The latest Fed statements and economic data indicate that no significant deterioration has been observed in the U.S. economy. As a result, the Fed may maintain its hawkish stance this evening.
However, the dollar's recent weakness is driven not only by recession concerns but also by expectations of a more dovish stance from the FOMC. I believe these expectations will not be fulfilled today. Even if they are, traders have already priced them in. Thus, I anticipate renewed U.S. dollar strength. Both the euro and the pound have encountered significant resistance levels, suggesting a downward movement ahead.
On the 4-hour chart, the pair continues to trend higher. A sharp decline in the pound is unlikely unless prices break below the ascending channel. A bearish divergence has appeared on the CCI indicator, but it has yet to impact the bulls' position. A rejection from the 1.2994 level could lead to a decline towards the 50.0% Fibonacci retracement level at 1.2861.
Commitments of Traders (COT) Report:
The sentiment among Non-commercial traders has become more bullish over the past reporting week. The number of long positions held by speculators increased by 12,920, while short positions grew by only 2,301. Bears have lost their market advantage, with the long-to-short positions gap now favoring bulls by nearly 30,000 (95,000 vs. 66,000).
From my perspective, the British pound still faces downside risks, though recent events could shift the market's long-term trajectory. Over the past three months, long positions have declined from 98,000 to 94,000, while short positions have fallen from 78,000 to 66,000. More importantly, over the last six weeks, long positions have surged from 59,000 to 95,000, while short positions have dropped from 81,000 to 66,000.
U.S. and UK Economic Calendar:
Wednesday's economic calendar is highly significant, with all three U.S. events carrying strong market-moving potential, especially in the evening session.
GBP/USD Forecast and Trading Advice:
Sell positions may be considered if the price rejects the 1.3003 level on the hourly chart, targeting 1.2931 and 1.2865.
Buy positions may be considered if the price closes above 1.3003 on the hourly chart, targeting 1.3151.
Fibonacci retracement levels are drawn from 1.2809–1.2100 on the hourly chart and 1.2299–1.3432 on the 4-hour chart.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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