To open long positions on GBP/USD, you need:
In my morning forecast, I paid attention to the level of 1.3254 and recommended making decisions on entering the market. Let's take a look at the 5-minute chart and figure out the entry point. The entire focus of traders was focused on the report on the growth of inflation in the UK, which turned out to be much higher than economists' forecasts, which prompted traders to build up long positions. The breakout and the reverse test of 1.3254, which are visible on the chart, led to the formation of a signal to buy the pound in continuation of the morning trend. However, before the publication of the results of the Federal Reserve meeting, this signal may come to naught. So be careful. While trading is above 1.3254, we can count on growth and updating 1.3286.
The entire focus in the afternoon will be on tightening monetary policy by the Federal Reserve System. If the Central Bank governors surprise us with something, for example, they announce a more active curtailment of measures to support the economy, only in this case, we can count on a sharp drop in the GBP/USD pair. If all the reports coincide with economists' expectations, then the pound may significantly strengthen its position in the expectation of a more aggressive policy from the Bank of England tomorrow. The weak growth of retail sales in the US will certainly allow buyers of the pound to protect the level of 1.3254, and the next formation of a false breakdown on it will form an excellent entry point in the continuation of the upward trend. A more optimal scenario for the second half of the day will be purchases after the formation of a false breakdown in the area of 1.3222, where the moving averages are playing on the buyers' side. This will lead to a signal to open long positions with the expectation of continuing the morning trend. If there is no activity on 1.3222 I advise you to postpone purchases to the local lows of 1.3191 and 1.3162, where you can open long positions immediately for a rebound based on at least 15-20 correction points within the day. If the bulls manage to defend 1.3254, an equally important task will be to rise above 1.3286, which we did not reach quite a bit in the first half of the day. A breakthrough and a reverse test of 1.3286 after the results of the Fed meeting and a top-down test of this level will lead to the formation of an additional buy signal to restore GBP/USD to the resistance area of 1.3317. A similar breakthrough of this level will open a direct road to the highs of 1.3349 and 1.3368, where I recommend fixing profits.
To open short positions on GBP/USD, you need:
Sellers of the British pound did not cope with the tasks set in the morning and after strong inflation data and an unsuccessful attempt to protect 1.3254 decided to step aside. Now their focus is on protecting 1.3286 and getting 1.3254 back under control. Only the formation of a false breakout at 1.3286 will give a good entry point into short positions with a decline in the area of 1.3254. A breakthrough and a reverse test from the bottom up of this level, together with strong data on the American economy, form an additional entry point into short positions with the prospect of a decline already to the area of lows: 1.3222 and 1.3191, where I recommend fixing the profits. The breakdown of 1.3191 will depend entirely on the decision of the Federal Reserve System on monetary policy. If the pair grows during the American session and weak activity at 1.3286, it is best to postpone sales to 1.3317. I also advise you to open short positions there only in case of a false breakdown. It is possible to sell GBP/USD immediately for a rebound only from a large resistance of 1.3349, or even higher - from a maximum of 1.3368, counting on the pair's rebound down by 20-25 points inside the day.
The COT reports (Commitment of Traders) for December 7 recorded a reduction in both short and long positions. Given the almost equal reduction of positions, this did not lead to serious changes in the negative delta. Poor data on the UK economy, which came out at the end of last week, clearly soured the mood of buyers of risky assets, counting on an upward correction of the pair before the meeting of the Bank of England. This week, the governor of the Central Bank, Andrew Bailey, will talk about his position on further monetary policy. If it continues to be dovish, most likely, the pressure on the pound will only increase, since representatives of the Federal Reserve System, on the contrary, are going to curtail stimulus measures, which should support the US dollar. High inflation remains the main reason why the Bank of England may change its mind about maintaining stimulus measures, but uncertainty will remain until the publication of the results of the meeting on December 16. An equally serious problem for the UK is a new strain of the Omicron coronavirus, which can lead to another lockdown and the closure of the country for quarantine. So far, the authorities have to closely monitor the development of the situation with the new strain, which negatively affects the economy at the end of this year. The COT report for December 7 indicated that long non-commercial positions fell from the level of 52,099 to the level of 48,950, while short non-commercial positions fell from the level of 90,998 to the level of 87,227. This led to the preservation of the negative non-commercial net position almost unchanged: -38,277 versus -38,899 a week earlier. The weekly closing price sank slightly - from 1.3314 to 1.3262.
Signals of indicators:
Moving averages
Trading is conducted above 30 and 50 daily moving averages, which indicates an attempt by bulls to return to the market.
Note. The period and prices of moving averages are considered by the author on the hourly chart H1 and differ from the general definition of the classic daily moving averages on the daily chart D1.
Bollinger Bands
A breakthrough of the upper limit of the indicator in the area of 1.3260 will lead to an increase in the pound. In case of a decline, the lower border of the indicator in the area of 1.3210 will provide support.
Description of indicators
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. The graph is marked in yellow.
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. The graph is marked in green.
- MACD indicator (Moving Average Convergence / Divergence - moving average convergence/divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-profit speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial positions represent the total long open position of non-commercial traders.
- Short non-commercial positions represent the total short open position of non-commercial traders.
- Total non-commercial net position is the difference between the short and long positions of non-commercial traders.
