In my morning forecast, I paid attention to the 1.1110 level and recommended deciding on entering the market there. Let's look at the 5-minute chart and figure out what happened. The breakthrough and sharp growth of GBP/USD above 1.1110 occurred without a top-down reverse test, which I depicted on the chart, so it was impossible to enter long positions for the pair. For the second half of the day, the technical picture has changed a little – especially considering what volatility awaits us.
To open long positions on GBP/USD, you need:
It has already been said that everything will depend on what the US inflation data turns out to be. In the event of its further growth, the growth of the US dollar will also be ensured. Therefore, only protection and the formation of a false breakdown at 1.1115, which is unlikely, will allow you to enter long positions in the continuation of the upward correction. The target of the movement will be the 1.1208 area, the breakthrough of which will only occur in the case of data indicating a decrease in inflationary pressure in the United States. A breakout and a top-down test of 1.1208 will create a direct road to the 1.1280 area, completely canceling the bear market observed since October 4. Going beyond this level will allow you to test 1.1354, where I recommend fixing the profits. The pressure on the pound will increase under the scenario of the GBP/USD falling against strong statistics and the absence of buyers at 1.1115. In this case, I recommend postponing long positions until 1.1031. I advise you to buy there only on a false breakdown. It is possible to open long positions on GBP/USD immediately on a rebound from 1.0955, or around the minimum of 1.0876, with the aim of correction of 30-35 points within a day.
To open short positions on GBP/USD, you need:
Bears continue to retreat as more and more traders expect that the Bank of England will still go to extend the emergency bond purchase program. The optimal scenario for selling is now a false breakdown in the area of a new resistance of 1.1208, the test of which may take place after the release of inflation data in the United States. An equally important task for the bears will be to regain control over the 1.1115 level. A breakout and a reverse test from the bottom up of this range will return pressure on the pair and give a chance for a larger drop with a breakdown of the 1.1031 minimum. Going beyond this range will determine the entry point for sale with a fall to 1.0955, but the area of 1.0876 will be a much more interesting target, where I recommend fixing profits. An update of this range will witness the resumption of the bearish trend observed since October 4. In the absence of sellers at 1.1208, which also cannot be excluded, I recommend postponing sales until 1.1280. Only a false breakout at this level forms an entry point into short positions in the expectation of the pound moving down. In case of lack of activity, there may be a jerk up to 1.1354, where I advise you to sell GBP/USD immediately for a rebound, counting on a correction down by 30-35 points within a day.
The COT report (Commitment of Traders) for October 4 recorded a sharp reduction in both long and short positions. The report has already recorded the pound's falling by more than 10% in two days and then its sharp recovery against the background of the intervention of the Bank of England. Now that the situation has stabilized, it is clear that those who want to buy and sell the pound have sharply 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 previous plan to reduce taxes failed; it is unlikely to expect a further recovery of the pound. Activity in the UK private sector and the service sector continues to decline, which also does not add confidence to investors. Much will depend on the Fed'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 42,078. In contrast, short non-commercial positions decreased by 14,638 to 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.
Signals of indicators:
Moving Averages
Trading is conducted above the 30 and 50-day moving averages, which indicates the continuation of the upward correction.
Note: The author considers the period and prices of moving averages on the hourly chart H1 and differ from the general definition of the classic daily moving averages on the daily chart D1.
Bollinger Bands
In case of a decline, the lower limit of the indicator, around 1.1040, will act as 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, use the futures market for speculative purposes and to 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.
