Quite a lot of excellent market entry signals were formed yesterday. Let's take a look at the 5-minute chart and figure out what happened. I paid attention to the 1.1029 level in my morning forecast and advised making decisions on entering the market there. A sharp increase in the number of applications for unemployment benefits in the UK, along with a decrease in the unemployment rate itself, can be explained by the fact that the data were provided for different periods. However, it still resulted in the pound's fall and a breakthrough of 1.1029. A reverse test of this level led to a sell signal, but after a second move down by 30 points, the pressure on the pair eased, which led to a recovery and a return back to 1.1029. Closer to the beginning of the US session, the bulls achieved a breakthrough and a reverse test from top to bottom of 1.1079, which led to a buy signal that showed an upward movement of 30 points. After another breakthrough, a similar breakout and a buy signal could be observed in the area of 1.1128 – another additional 40 points. Well, selling on a false breakout from 1.1168 was just amazing: in total, the pair went down more than 170 points.
When to go long on GBP/USD:
Today, a huge number of statistics on the UK economy is expected, which can lead to a surge in pound volatility even after recent statements by the Bank of England, from which it is not completely clear whether it is going to continue the bond purchase program or decide to end it. If the end of support measures is announced, the pound may react with a new fall. Then why all this was done is not entirely clear. As for statistics, the figures for the change in the volume of the UK's GDP, as well as the change in the volume of industrial production in the UK, deserve special attention. The visible trade balance will fade into the background, as will the speech of BoE MPC member Jonathan Haskell.
In case the pair goes down after we receive the reports, forming a false breakout at the level of 1.0935 will provide a buy signal with the goal of returning to 1.1002 – an intermediate resistance formed following the results of the Asian session. A breakthrough and test from top to bottom of this range may pull speculators' stop orders, which creates a new buy signal with growth to a more distant level of 1.1063, where the moving averages play on the bears' side. The most distant target of the bulls will be a high of 1.1117, but this will not lead to a breakthrough in the bear market yet. If the bulls fail to cope with their tasks and miss 1.0935, the pressure on the pair will quickly return, which will open up the prospect of updating the next low at 1.0876. I advise you to buy there only on a false breakout. I recommend opening long positions on GBP/USD immediately for a rebound from 1.0800, or even lower - around 1.0738 with the goal of correcting 30-35 points within the day.
When to go short on GBP/USD:
Bears have been able to control the market, especially after recent announcements by BoE Governor Andrew Bailey that the bond purchase program, which ends on October 14, will not be extended. If so, then we can expect a new sell-off of the pound. In the meantime, the entire calculation is on the summary and minutes of the meeting of the BoE's Financial Policy Committee. The best scenario for selling in the current conditions would be a false breakout in the resistance area of 1.1002, which was formed at the end of the Asian session. The target in this case will be the nearest support at 1.0935. A breakthrough and reverse test from the bottom up of this range will provide a good entry point with a new low at the 1.0876 area. The farthest target will be the area of 1.0800, where I recommend taking profits.
If GBP/USD grows and there are no bears at 1.1002, bulls will start returning to the market, counting on offsetting the situation after yesterday's sell-off. This should push the pair to the 1.1063 area. Only a false breakout at this level will provide an entry point into short positions with the goal of a new decline. If there is no activity there, I advise you to sell GBP/USD immediately for a rebound from 1.1117, counting on the pair's rebound down by 30-35 points within the day.
COT report:
The Commitment of Traders (COT) report for October 4 logged a sharp decline in both long and short positions. The report has already recorded the fact that the pound fell by more than 10% in two days, and then its sharp recovery amid the Bank of England's intervention. Now, when the situation has stabilized a bit, it is clear that those who want to buy and sell the pound have significantly decreased. Given that the prospects for the British economy are deteriorating sharply and it is far from clear how the government is going to continue to deal with the cost-of-living crisis and high inflation - let me remind you that the last tax reduction plan failed; it is unlikely to expect further recovery of the pound. Activity in the UK private sector and in the service sector continues to decline, which also does not add confidence to investors. Much will depend on the Federal Reserve's policy, which is directly related to the US inflation report expected this week. For this reason, I do not bet on further growth of the pound in the current conditions and prefer the US dollar. The latest COT report indicates that long non-commercial positions decreased by 17,753, to the level of 42,078, while short non-commercial positions decreased by 14,638, to the level of 91,617, which led to a slight reduction in the negative value of the non-commercial net position to -49,539, against -46,424. The weekly closing price recovered and it was 1.1494 against 1.0738.
Indicator signals:
Trading is below the 30 and 50-day moving averages, indicating that the bear market continues.
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 of growth, the average border of the indicator around 1.1175 will act as resistance. In case of a decline, the area of 1.0876 will act as support.
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.
