On the hourly chart, the GBP/USD pair returned on Tuesday to the 1.3437–1.3470 level, where it is trading on Wednesday morning. A consolidation below this zone would once again favor the U.S. dollar and a decline toward the support level at 1.3352–1.3362. A consolidation above the 1.3437–1.3470 level would allow traders to expect growth toward 1.3526–1.3539.

The wave situation remains "bearish." The last completed downward wave broke the previous low, while the new upward wave failed to break the previous peak. The news background for the British pound has been weak in recent weeks, but the news background in the U.S. has been even worse. Nevertheless, the bears have not yet relinquished the initiative, although the bulls have been attacking more actively over the past couple of days.

The news background on Tuesday did not help the bulls, who were encouraged as soon as Donald Trump announced tariff increases for the United Kingdom and some European Union countries. Yesterday it became known that the unemployment rate in November was 5.1%, although some forecasts pointed to a decline to 5.0%. The number of unemployment benefit claims increased by 17.9 thousand, compared with expectations of about 15.6–20.5 thousand. Average earnings rose by 4.7%, slightly above forecasts. Overall, the economic data from the UK can be described as neutral. However, pound bulls failed to build on their success, unlike euro bulls. This morning it became known that core inflation in the UK amounted to 3.2% in December (the same as in November), while headline inflation increased from 3.2% to 3.4%. Since the consumer price index has accelerated again, the probability of monetary policy easing by the Bank of England at the upcoming meeting has dropped to almost zero. This fact should once again support the pound and the bulls; however, I observed almost no reaction from traders to this report. The market continues to closely monitor the forum in Davos and is waiting for developments around Greenland and a new escalation of the trade war between the European Union and the United States.

On the 4-hour chart, the pair has returned to the support level of 1.3369–1.3435. A rebound from this zone would once again work in favor of the pound and a resumption of growth toward the next Fibonacci level at 127.2% — 1.3795. A consolidation below the 1.3369–1.3435 level would allow traders to expect a reversal in favor of the U.S. dollar and a decline toward the support level at 1.3118–1.3140. No emerging divergences are observed today.

Commitments of Traders (COT) Report:

The sentiment of the "Non-commercial" trader category became more bullish over the last reporting week. The number of long positions held by speculators increased by 2,517, while the number of short positions decreased by 2,751. The gap between the number of long and short positions is currently effectively as follows: 79 thousand versus 104 thousand, and it is shrinking rapidly. Bears have dominated in recent months, but the pound appears to have already exhausted its downward potential. At the same time, the situation with euro contracts is directly opposite. I still do not believe in a bearish trend for the pound.

In my view, the pound still looks less "dangerous" than the dollar. In the short term, the U.S. currency may occasionally enjoy demand in the market, but not in the long term. Donald Trump's policies have led to a sharp decline in the labor market, and the Federal Reserve has been forced to ease monetary policy to stop the rise in unemployment and stimulate job creation. U.S. military aggression also does not add optimism for dollar bulls.

Economic Calendar for the U.S. and the UK:

United Kingdom – Consumer Price Index (07:00 UTC).

On January 21, the economic calendar contains one entry, which has already been released. The influence of the news background on market sentiment on Wednesday may persist throughout the day.

GBP/USD Forecast and Trading Advice:

Selling the pair is possible today if there is a rebound from the 1.3437–1.3470 level on the hourly chart, with a target at 1.3352–1.3362. Buying positions can be opened if the price closes above the 1.3437–1.3470 level, with a target at 1.3526–1.3539.

Fibonacci grids are drawn from 1.3470–1.3010 on the hourly chart and from 1.3431–1.2104 on the 4-hour chart.