GBP/USD. September 15th. The Bank of England may support the bulls

[Ben Graham]

On the hourly chart, GBP/USD traded sideways on Friday just below the 100.0% retracement level at 1.3587. A rebound from this level would favor the U.S. dollar and a decline toward the 76.4% Fibonacci level at 1.3482, which traders could then work through. A consolidation above the resistance zone of 1.3611–1.3620 would allow for further growth toward the next 127.2% retracement level at 1.3708.

The wave picture continues to shift toward bullish. The last completed wave downward broke through two previous lows, while the new upward wave broke through the last two peaks. Thus, at this point it can be assumed that a new bullish trend is starting after more than two months of weak bearish dominance. That dominance proved very fragile, as the news background in most cases did not support the bears.

On Friday, the bulls did not receive the necessary news background to overcome key levels and zones. U.K. GDP in July did not increase even by 0.1%, and industrial production fell again—something traders are already accustomed to. This week, a lot will depend on the outcomes of the Fed and Bank of England meetings. The Fed may follow the baseline scenario, but any dovish hint about labor market weakness or the possibility of three policy easings by year-end would support the bulls. The Bank of England, on the other hand, is likely to take a "neutral" stance, as U.K. inflation continues to rise. I believe that one or two MPC members will vote for a rate cut, which is unlikely to strongly support the bears. Thus, on Monday, the news background appears to favor the bulls. However, I want to remind you that central bank meetings are multifaceted events. Jerome Powell may say something unexpected. Andrew Bailey may adopt a less "neutral" stance. Or the number of MPC members voting for a rate cut could exceed forecasts. In all these cases, bulls may retreat. Still, the bullish trend remains in place, and if not now, then within a week the pound is likely to continue its rise.

On the 4-hour chart, the pair completed a new reversal in favor of the pound and consolidated above the 1.3378–1.3435 zone. Thus, growth may continue toward the next 127.2% retracement level at 1.3795. The chart pattern is currently ambiguous, with traders moving the pair in both directions. At this stage, I recommend paying more attention to the hourly chart. There are more levels there and it is easier to work with waves. No emerging divergences are visible on any indicator.

Commitments of Traders (COT) report:

The sentiment of the "Non-commercial" category did not change in the last reporting week. The number of long positions held by speculators fell by 1,213, while the number of short positions fell by 748. The gap between longs and shorts is currently about 75,000 versus 109,000. But as we can see, the pound is still leaning toward growth, and traders toward buying.

In my view, the pound still faces the prospect of declines. The news background in the first half of the year was disastrous for the U.S. dollar but is gradually stabilizing. Trade tensions are easing, key deals are being signed, and the U.S. economy in Q2 is expected to recover thanks to tariffs and various types of investment in the U.S. At the same time, expectations of Fed monetary easing in the second half of the year are already creating strong pressure on the dollar, as the U.S. labor market is weakening and unemployment is rising. Thus, I still see no basis for a "dollar trend."

News calendar for the U.S. and U.K.:

September 15 – the economic calendar contains no noteworthy entries. The news background will not affect market sentiment on Monday.

GBP/USD forecast and trading tips:

Sales of the pair are possible on a rebound from 1.3587 on the hourly chart with a target of 1.3482. Purchases are possible today on a close above the 1.3611–1.3620 zone with a target of 1.3708.

The Fibonacci grids are built from 1.3586–1.3139 on the hourly chart and from 1.3431–1.2104 on the 4-hour chart.

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