FX.co ★ GBP/USD trading plan for European session on March 15, 2022. Commitments of Traders (analysis of yesterday's traders). Pound continues to renew yearly lows

When to open long positions on GBP/USD:

Yesterday, there were some good entry points formed on the pound. Let's look at the 5-minute chart and figure out what happened and how we should have acted. In my morning forecast I paid attention to the levels of 1.3048 and recommended to make market entry decisions from it. A sell signal for the pound was generated amid the bulls' unsuccessful attempts to get above 1.3048. As a result, the pair fell by more than 30 pips, but closer to the US session demand for the pound returned. The bulls achieved a breakdown and a reverse test of 1.3048, which led to the formation of an excellent entry point into long positions. However, given the fact that the buying was against the trend, I never saw a strong move upwards. After an increase of 20 pips the pressure on the pair returned. Eventually the bulls completely lost the initiative, allowing the pair to make a new weekly low by the close of the US trading.

Before analyzing the technical picture of the pound, let's take a look at what happened in the futures market. The COT reports (Commitment of Traders) for March 8 recorded a sharp increase in both long and short positions. Some took advantage of the panic in the market, others benefited from attractive prices. However, those who were building up short positions were outnumbered, leading to an increase in negative delta. This week sees a meeting of the Federal Reserve. It is a big question how the US regulator will behave in the face of the highest inflation rate in 40 years. A more active interest rate policy will strengthen the demand for the US dollar, which is already trampling the British pound almost every day to another annual low. Although Russia and Ukraine have sat down for talks, these meetings have so far not yielded any particular results. Against this backdrop, I recommend to keep buying the dollar as the bearish trend in GBP/USD is still there. The only thing currently saving the pound from a major sell-off is high inflation in the UK, which will force the Bank of England to act more aggressively as well. The day after the Fed meeting, the Bank of England meeting will take place. This is where a reversal of the pound could occur, so when selling at the lows of GBP/USD, think about tomorrow. The COT report for March 8 shows that long non-commercials have risen from 47,679 to 50,982, while short non-commercials have climbed from 48,016 to 63,508. This led to an increase in the negative non-commercial net position from -337 to -12,526. The weekly closing price fell to 1.3113 versus 1.3422.

Pound buyers have little reason to be optimistic at the moment as there is a Federal Reserve meeting ahead. After that, it will be necessary to sort out how the Bank of England will proceed and what it has proposed to combat high inflation and how it will support the sharply slowing economy. However, today could be a buyers' day, which will take advantage of the momentum of the good UK labour market data. Buyers' priority for today is to defend the 1.3002 support from yesterday's results. This level is not important as if the pound returns to this range, the bulls would prefer to stay on the sidelines. In case of a decline, only the formation of a false break at 1.3002 and good UK unemployment figures as well as changes in UK jobless claims will give a buy signal for GBP/USD in order to build at least some upward retracement. In such a scenario, the bulls will target 1.3059 resistance, which they failed to break above yesterday. A breakdown and a top-down test of this level will form an additional entry point and will strengthen the buyers' position with the rise to 1.3121 high and the prospect of a new resistance at 1.3190. A further target is 1.3244, where I recommend to take profits. However, we will only be able to reach this level with very positive news and a reduction in the conflict between Russia and Ukraine. In the scenario of the pound falling during the European session and no activity at 1.3002, which is likely to be the case. It is better to postpone buying until the next low at 1.2932 or until the larger support at 1.2856. Only the formation of a false breakdown at these levels could leave a bearish trend and provide an entry point for a short-term rebound of the pair upwards. Buy GBP/USD immediately on a bounce from 1.2807 and only with a correction target of 30-35 pips intraday.

When to open short positions on GBP/USD:

The bears are feeling quite calm today and the situation is likely to remain unchanged until tomorrow's decisions by the Federal Reserve. Even expectations of a slight upward correction today on the pound are not serious concerns. A rise would be seen as a good opportunity to sell at higher prices. A worsening geopolitical environment will also play into the hands of the sellers, but if it improves, the bears will quickly withdraw from the market, leading to a rapid rise in the pound. Pay particular attention to this. Trading is below the moving averages, indicating that the sellers have full control of the market. Their primary objective is to defend the 1.3059 range. The formation of a false breakdown at this level will give an entry point into short positions to continue the bearish market with a subsequent decline in the pair to 1.3002. This level will be a struggle as this range is another yearly low. A breakdown and a retest to 1.3002 from below would take down a number of stop orders, which would take GBP/USD to the lows of 1.2932 and 1.2856. A farther target will be 1.2807, where I recommend to take profits. In case the pair rises during the European session and sellers are weak at 1.3059, it is best to postpone the sale to resistance at 1.3121. I also advise to open short positions there only in case of a false breakdown. Sell GBP/USD immediately on a rebound can be from the high of 1.3190, or even higher from 1.3244, counting on a 30-35 pips pullback within a day.

Indicator signals:

Moving averages

Trading is carried out below the 30-day and 50-day moving averages, indicating bears' attempt to establish control over the market.

Note: The period and prices of moving averages are viewed by the author on the hourly chart and differ from the general definition of classic daily moving averages on the daily chart.

Bollinger Bands

A break of the indicator's lower boundary at 1.3002 will increase pressure on the pair. A break of the upper boundary at 1.3060 will lead to a new wave of growth in the pound.

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