Long positions on GBP/USD:
The buy signal formed in the first half of the day did not lead to the expected result, although it was a perfect entry point. Let's look at the M5 chart and analyze what happened. Bulls are holding the price above 1.3526 and trying to form a false breakout which signals to open long positions and triggers a rally by 15 pips. That was it. After a while the pair returned to this range again, which indicates the lack of those willing to open long positions at current prices. Technically, nothing changed, although the pressure on the pound may increase in the second half of the day.
In the second half of the day traders will pay close attention to economic data on the US inflation and labor market. The indicators may cause turbulence among the GBP/USD traders if the readings exceed economists' expectations. Only the formation of a false breakout at 1.3526 may signal to open long positions and return demand for the pound. In this case, an upward correction towards resistance at 1.3567 may occur. The resistance is located in the middle of the channel. One of the main targets is to regain control over this level. A breakout and a retest of this mark top/bottom are likely to generate a buy signal. If so, the pair may increase to the area near 1.3605 and to a high at 1.3649. Traders should consider locking in profit there. A further target is located at 1.3694 which will be available if weak data on the US Consumer Price Index is released. If the GBP/USD pair declines in the second half of the day and the situation with Brexit worsens, the best entry point for opening long positions on the pound would be a test of support at 1.3478. However, it would be better to open long positions there only after a false breakout. Another option for going long would be on a bounce from a new low of 1.3426 or even from support at 1.3375, allowing a 25-30 pips intraday correction.
Short positions on GBP/USD:
Bears have already attempted to break through 1.3526 but they failed. However, demand for the pound is still low after yesterday's news about new problems with the UK-EU trade agreement, which may increase the pressure on the pound at any time. Bears need a break through and a retest of 1.3526 top/bottom which are likely to generate a sell signal with targets at 1.3478 and 1.3426. Traders should consider taking profit there. The level of 1.3375 is the next target but it is available if the inflationary pressure in the US in October is strong. The data will be released later today. If the pair rises during the US session, only the formation of a false breakout near the middle of the sideways channel at 1.3567 may become the first signal to open short positions. If the GBP/USD pair fixes above this level, it is better to postpone selling until it reaches the resistance at 1.3605. Another option for going short would be on a bounce from 1.3649 or from the new high at 1.3694, allowing a 20-25 pips intraday pullback.
The COT (Commitment of Traders) reports as of November 2 logged an increase in both long and short positions which reflected the higher demand for the pound before the Bank of England meeting last week. Considering that there were more buyers and they keep coming back to the market, the upward correction may continue. This week there are a lot of statements from the representatives of the Bank of England, who are disagreeing with the policy of governor Andrew Bailey. After the November meeting of the Bank of England, the monetary policy has remained unchanged, although many traders expect its tightening by the end of the year. Therefore, a sharp inflationary pressure is likely to continue to support the demand for the pound. It is recommended to buy the pair during large falls, which may occur amid the uncertainty in the central bank's policy. The COT report indicated that long non-commercial positions rose to 57,255 from 51,912, while short non-commercial positions strengthened slightly to 42,208 from 36,959. This led to an upward change in the non-commercial net position. The delta was 15,047 against 14,953 a week earlier. The weekly closing price dropped significantly as a result of the Bank of England policy to 1.3654 from 1.3763.
Indicator signals:
Moving averages
Trading is carried out below 30- and 50-period MAs, indicating the sellers' attempt to return to the market.
Important! The period and prices of moving averages are viewed by the author on the hourly H1 chart and differ from the general definition of classic daily moving averages on the D1 chart.
Bollinger Bands
The pair is likely to rise in case of a breakout of the upper band at 1.3570. A breakout of the lower band at 1.3526 may strengthen the pressure on the pair.
Indicator description:
- Moving average (MA) determines the current trend by smoothing volatility and noise. Period 50. Colored yellow on the chart.
- Moving average (MA) determines the current trend by smoothing volatility and noise. Period 30. Colored green on the chart.
- Moving Average Convergence/Divergence (MACD). Fast EMA 12. Slow EMA 26. SMA 9.
- Bollinger Bands. Period 20
- Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial positions are the total long position of non-commercial traders.
- Non-commercial short positions are the total short position of non-commercial traders.
- Total non-commercial net position is the difference between short and long positions of non-commercial traders.
