Several market entry signals were formed last Friday. Let's take a look at the 5-minute chart and see what happened. I paid attention to the 1.1562 level in my morning forecast and advised making decisions on entering the market from it. Growth and forming a false breakout at 1.1562 - all this led to a sell signal, which to a large extent was not realized amid the lack of fundamental statistics on the UK. As a result, the movement amounted to about 15 points, after which the demand for the pound returned. A burst of volatility after a rather mixed report on the US labor market led the pound to move down to the 1.1535 area and a false breakout to form at this level. As a result, a buy signal was formed, and the upward movement was about 50 points.
When to go long on GBP/USD:
Today there are very important reports on activity in the UK services sector, which accounts for a significant part of the economy. A slowdown in this indicator will lead to a further decline in the pound and, most likely, to an update of the 2020 low, to which there is very little left. The deterioration of the economic and political situation in the UK continues to negatively affect the prospects for the pound, the pressure on which is increasing every day. In the event of a decline in GBP/USD after weak data on the PMI in the services sector and the UK composite PMI index, forming a false breakout at 1.1409 - the low of 2020, will lead to the first signal to open long positions in anticipation of a correction in the 1.1476 area. A breakthrough and test from top to bottom of this range may pull stop orders from speculative bears, which creates a buy signal with growth to a further level of 1.1528, where the moving averages play on the bears' side. The farthest target will be the area of 1.1583, where I recommend taking profits.
If the GBP/USD falls further and there are no bulls at 1.1409, the pressure on the pair will increase. A breakthrough of this range will lead to the renewal of the next annual low. In this case, I advise you to postpone long positions until the next support at 1.1358, but you can act there only on a false breakout. I recommend opening long positions on GBP/USD immediately for a rebound from 1.1313, or even lower - around 1.1260, counting on correcting 30-35 points within the day.
When to go short on GBP/USD:
Bears continue to push the pound down, updating daily lows each time, which indicates that they are in control of the market. It is likely that today's statistics for the UK will help them get to the annual lows. Of course, it would not be a good idea to rush to sell on the breakdown of 1.1409. Where better to act, relying on an upward correction. The optimal scenario for opening short positions on GBP/USD would be forming a false breakout at the level of 1.1476, a breakthrough to which may occur in case we receive good results on the PMI index for the UK services sector, which was in a fairly good state back in July. This will make it possible to achieve a new fall and renewal of annual lows around 1.1409. Only a breakthrough and a reverse test of this range will provide a new entry point for selling with a fall to 1.1358, and the area of 1.1313 will be the next target, where I recommend taking profits.
In case GBP/USD grows and there are no bears at 1.1476, there will be ghostly chances for an upward correction, and bulls will have an excellent opportunity to return to 1.1528, where the moving averages play on the bears' side. Only a false breakout there will provide an entry point into short positions based on the pair moving down. If there is no activity there, I advise you to sell GBP/USD immediately for a rebound from 1.1583, counting on the pair's rebound down by 30-35 points within the day.
COT report:
The Commitment of Traders (COT) report for August 23 logged an increase in both short positions and long positions. And although the latter turned out to be a bit more, these changes did not affect the real current picture. Serious pressure on the pair remains, and recent statements by Federal Reserve Chairman Jerome Powell that the committee will continue to aggressively raise interest rates further have only increased pressure on the British pound, which has been experiencing quite a lot of problems lately. Expected high inflation and a looming cost-of-living crisis in the UK does not give traders room to take long positions, as a fairly large range of weak fundamentals is expected ahead, likely to push the pound even further below the levels at which it is currently trading. This week, it is important to pay attention to data on the US labor market, which, among other things, determine the Fed's decision on monetary policy. Continued resilience with low unemployment will lead to higher inflationary pressures going forward, forcing the Fed to further raise interest rates, putting pressure on risky assets, including the British pound. The latest COT report indicated that long non-commercial positions rose 14,699 to 58,783, while short non-commercial positions rose 9,556 to 86,749, leading to a slight rise in the negative non-commercial net position to -27,966 against - 33,109. The weekly closing price fell off from 1.1822 against 1.2096.
Indicator signals:
Trading is below the 30 and 50-day moving averages, which indicates further decline in the pair.
Moving averages
Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
In case the pair falls, the lower border of the indicator around 1.1410 will act as support. In case of growth, the upper border of the indicator around 1.1585 will act as resistance.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart.
- MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-commercial 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 short and long positions of non-commercial traders.
