Several market entry signals were formed yesterday. Let's take a look at the 5-minute chart and see what happened. Considering that there were no statistics for the UK, the entire focus was on the European Central Bank meeting. There was a burst of volatility in the afternoon and after a breakthrough and a test from the bottom up of the level of 1.1505, we got a great signal to sell the pound. As a result, the pair fell by 40 points, but the movement did not continue. No other signals were generated.
When to go long on GBP/USD:
Today, only the results of the survey regarding the expected inflation in the UK can be distinguished from the statistics, which will have little effect on the pound's direction. Given that lately, risky assets are gradually beginning to be in demand, we might just see the bulls try to break out of the downward trend, counting on a breakthrough above the 16th figure. The smooth reversal of the pair that we have at the lows of the year: starting from September 5 and ending with yesterday - all this also indicates a clear continuation of the GBP/USD growth in the short term. In case GBP/USD falls in the morning, this will only be an excuse to build up long positions. Forming a false breakout in the area of 1.1560 will provide the first signal to buy the pound in order to recover to the 16th figure in the area of 1.1605. A breakthrough and test from top to bottom of this range may pull stop orders of speculative bears, which creates a buy signal with growth to a more distant level of 1.1644. The farthest target will be the area of 1.1690, where I recommend taking profits.
If the GBP/USD falls and there are no bulls at 1.1560, then the pair will be under pressure again, but there is no need to panic. In this case, I advise you to postpone long positions until the next support at 1.1516, where the moving averages are passing, already playing on the bulls' side. I recommend opening long positions on GBP/USD immediately for a rebound from 1.1462, or even lower - around 1.1406, counting on correcting 30-35 points within the day.
When to go short on GBP/USD:
Yesterday, the bears did everything possible to protect quite important levels, but today's growth in the Asian session has put them on the verge of capitulation, from which they are separated only by the 16th figure. Quite a lot depends on the level of 1.1605, so I advise you to focus on it in the first half of the day. The optimal scenario for opening short positions on GBP/USD would be forming a false breakout in this range, a breakthrough to which may occur at the beginning of the European session. This will make it possible to achieve a sell signal with the goal of returning to the 1.1560 area - an intermediate support level formed this morning. In order to seize the initiative, the bears need a breakthrough and a reverse test of this range, which will provide a new entry point for shorts with a fall to the level of 1.1516, which will become the middle of a wider horizontal channel. The farthest target will be the area of 1.1462, where I recommend taking profits.
In case GBP/USD grows and the bears are not active at 1.1605, things will become very bad for the bulls, which forms a chance for the continuation of the upward correction of the pound. Only a false breakout near the next resistance at 1.1644 will provide an entry point to shorts with the goal of a slight downward movement of the pair. If there is no activity there, I advise you to sell GBP/USD immediately for a rebound from 1.1690, counting on the pair's rebound down by 30-35 points within the day.
COT report:
An increase in short positions was logged in the Commitment of Traders (COT) report for August 30, while long ones decreased. This once again confirms the fact that the British pound is in a major downward peak. Serious pressure on the pair will continue in the future, as the British economy is getting worse and worse, and GDP is shrinking quite quickly. The choice of a new prime minister of Great Britain will only provide temporary support to the pound, since, in fact, it does not change anything. In turn, the US economy continues to show strength, and recent data on the labor market once again convinced investors that the US central bank, led by Federal Reserve Chairman Jerome Powell, will continue to raise interest rates at an aggressive pace, which will only increase pressure on the British pound, which is 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. The latest COT report indicated that long non-commercial positions decreased by 306 to 58,477, while short non-commercial positions rose by 898 to 86,647, which led to a slight increase in the negative value of the non-commercial net position to -29,170 vs. -27,966. The weekly closing price collapsed from 1.1661 against 1.1822.
Indicator signals:
Trading is above the 30 and 50-day moving averages, which indicates an upward correction for 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 goes down, the lower border of the indicator around 1.1462 will act as support. In case of growth, the upper border of the indicator around 1.1605 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.
