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GBP/USD analysis on July 25, 2022. GBP attempts to develop strong growth

Relevance up to 08:00 2022-07-26 UTC–4

On Monday, GBP/USD resumed its growth and developed a new upside cycle on the H1 chart towards the Fibonacci retracement of 523.6% at 1.2146. The quotes have not risen too far and may well return to the 1.1933 level where the price has been holding for the past few days. Unlike the euro, the pound is more likely to develop a strong upside movement. Last week, the economic background was moderate for GBP. The main reports were on the PMI index, the unemployment rate, inflation, and wages. In general, they were not so bad but at the same time, they couldn’t encourage the market. On Friday, the PMI index in the UK was the strongest compared to the US and the EU. However, the UK indicator was still weaker than expected, so the overall tendency remains negative. This week, markets will monitor the meeting of the US Federal Reserve. It is strange to see the pound strengthening at the start of the week because on Wednesday the Fed may declare a second rate hike of 0.75%. The pace of monetary tightening in the US is unprecedented as the rate hasn’t been raised so fast in a long time. The main goal of the US regulator is to tackle mounting inflation that shows no signs of a slowdown. The only solution left for the Fed is to raise the rate at a fast pace at its every meeting. No one could predict this at the beginning of the year. Yet, both the UK and the US have failed to control inflation so far. I think that the current uptrend in the British pound will not last long. However, the quote settled above the descending trendline, thus changing the market sentiment to bullish on the H1 chart.

On the 4-hour chart, the trend reversed in favor of the pound which resumed growth towards the descending trendline. This indicates the continuation of the bearish trend. A bounce from this line may benefit the US dollar. So the pair may start to decline again to the Fibonacci retracement level of 161.8% at 1.1709. A close above the trendline will confirm the further uptrend of the pound.

Commitments of Traders (COT) report:

The non-commercial category of traders became slightly less bearish on the pair over the last week. Long positions decreased by 1,907, while short ones fell by 3,746. So, the overall sentiment of major market players remained bearish as the number of short contracts notably outweighs the number of long ones. Large market players still prefer to sell the pound, and this sentiment has been the same for quite a long time now. Therefore, the pound may extend its decline in the next few weeks. It has a slight chance of growth which is unlikely to turn into a new trend and will most likely last for 2-3 days.

Economic calendar for UK and US:

On Monday, both the UK and US have no important data to publish. Therefore, the information background will not influence the market today.

GBP/USD forecast and trading tips:

I recommend selling the pound when the price settles below the level of 1.1933 on the 1-hour chart with the target at 1.1684. A good moment to buy the pound will be a rebound from the 1.1933 level on H1 with 1.2146 as a target. These positions can be left open for now.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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