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The wave pattern remains "bearish," odd as that may sound after two weeks of growth. The last completed downward wave broke below the lows of all previous waves, while the last upward wave failed to surpass the previous peak. The news background played a major role in shaping the exact waves we observed in recent weeks. In my view, the background has already turned the pair toward the bulls, so the trend may soon become "bullish" again.
On Thursday, the background supported both bulls and bears. Traders viewed the morning reports on U.K. business activity as positive for the British economy and the pound, even though the manufacturing PMI fell from 48.0 to 47.3. However, the services PMI rose from 51.8 to 53.0 (a stronger reading), which helped the bulls. The bulls' attack did not last long, as similar indices from the U.S. came out in the afternoon. In manufacturing, business activity rose from 49.8 to 53.3, while in services it slipped slightly from 55.7 to 55.4. Traders ignored the still-strong services sector and instead valued the recovery in manufacturing activity. Thus, the bears' attack is not unfounded. But tonight, with Jerome Powell, anything is possible. Powell may hint at a rate cut in September and weakness in the labor market. Or he may emphasize high inflation and avoid any hints on the September decision. It is impossible to predict his rhetoric and tone in advance. Therefore, in the evening it is best to be very cautious with any trades on the currency market.
On the 4-hour chart, the pair turned in favor of the dollar after a "bearish" divergence formed on the CCI indicator, while two "bullish" divergences on the same indicator failed to stop the decline. A rebound from the 1.3378–1.3435 zone could allow for some growth, but I consider the hourly chart more informative at this point.
Commitments of Traders (COT) Report:
The sentiment of the "Non-commercial" category of traders became more "bearish" in the latest reporting week. The number of long positions held by speculators rose by 8,101, while the number of short positions increased by 13,891. However, the sharp drop in interest in the pound indicated by COT reports does not fully reflect the real picture of the market, since interest in the dollar is also declining. The gap between the number of long and short positions is currently about 74,000 versus 113,000. Yet, as we see, the pound continues to grow.
In my view, the pound still faces prospects of decline. The news background during the first six months of the year was disastrous for the U.S. dollar, but it is gradually starting to turn more positive. Trade tensions are easing, key agreements are being signed, and the U.S. economy in the second quarter will recover thanks to tariffs and various types of investment. At the same time, expectations of Fed monetary policy easing in the second half of the year could create significant pressure on the dollar.
News calendar for the U.S. and the U.K.:
United States – Speech by FOMC Chair Jerome Powell (14:00 UTC).
On August 22, the economic calendar contains only one entry, but what an entry! The impact of the news background on market sentiment on Friday may be strong, but only in the evening.
GBP/USD forecast and trader recommendations:
Sales of the pair were possible on a rebound from 1.3586 on the hourly chart with a target of 1.3482. This target was reached. New sales were possible after closing below 1.3482 with a target of 1.3416–1.3425, and that target was also reached. Another opportunity to sell arose after closing below 1.3416–1.3425 with targets at 1.3364 and 1.3311. For buying the pair, a rebound from virtually any support level would be sufficient.
Fibonacci levels are drawn from 1.3586–1.3139 on the hourly chart and from 1.3431–1.2104 on the 4-hour chart.