Last Friday, GBP/USD did not produce signals for market entry. Now, let's take a look at the 5-minute chart and try to figure out what actually happened. Given that the pair failed to touch the target levels in the morning, there were no entry points. During the US session, there were also no signals due to a surge in volatility triggered by the release of the US economic reports. This is why the technical outlook for today was revised.
When to open long positions on GBP/USD:
An increase in the US Producer Price Index indicated that the US economy was not as resilient as many traders anticipated. For this reason, they are looking forward to the inflation report which is due tomorrow. This data is likely to give more hints about the Fed's future plans for monetary policy. Following the release of CPI data, volatility is expected to be higher than after the Fed meeting scheduled for Wednesday. Apart from that, the UK will also unveil a batch of macros stats today. It may also trigger sharp price swings, especially if reports miss market expectations. The industrial production report may help the pound sterling rise, while a weak report on the UK third-quarter GDP will surely escalate pressure on the pair. Investors are likely to ignore the trade balance report. Hence, it is better to be patient. It is recommended to open long positions only if a false breakout of 1.2209 takes place. It will give an entry point, enabling traders to push the price to 1.2262. At this level, the moving averages are benefiting sellers. To cement an upward movement, the pair needs to consolidate above this level. If so, it may reach last week's high of 1.2316. Should the price climb above this level, it is sure to approach 1.2367. At this level, I recommend locking in profits. If the bulls fail to push the pair to 1.2209, I would advise you to postpone long positions until a false breakout of 1.2158 takes place. You could buy GBP/USD immediately at a bounce from 1.2108, keeping in mind an upward intraday correction of 30-35 pips.
When to open short positions on GBP/USD:
Sellers are gradually pushing the quotes closer to the important support level of 1.2209. If the price breaks below this level, it will significantly undermine the bullish trend. Bears need to take control of the resistance level of 1.2262 if they plan to take the upper hand. Therefore, only a false breakout of 1.2262 will generate a good sell signal with the prospect of a further decline to the support level of 1.2209. Bulls and bears are likely to tussle for this level. A breakout and an upward retest of this level will give an entry point into short positions. The pair may reach 1.2158. Last week, bulls entered the market at this level. A more distant target will be the 1.2108 level, a low of last week. I recommend locking in profits there. If GBP/USD rises and bears show no energy at 1.2262, which looks likely, bulls will remain in control. A false breakout of 1.2262 will provide a market entry point for short positions, aiming for a downward move. In case, there is no activity there, I would advise selling GBP/USD immediately at a high of 1.2316, keeping in mind a downward intraday correction of 30-35 pips.
The COT report (Commitment of Traders) for November 29 logged a decline in both short positions and long positions. The latest macro statists have not been optimistic. The UK manufacturing and service sectors have been shrinking. Dismal macroeconomic data warns of a looming recession. The Bank of England seems unwilling to take efficient measures to prevent a recession. Its top priority is to cap soaring inflation. According to the reports, it has been sharply accelerating. Against this background, it is not surprising why traders prefer to be sitting on the sidelines. They are hesitant about whether to buy or sell the pound sterling. Looking at how much the pair has climbed since November, investors will hardly go long at the current highs. The US economy has demonstrated its resilience, which will certainly boost demand for the US dollar after the Fed meeting next week. The latest COT report revealed that long non-commercial positions decreased by 4,197 to 26,000, while short non-commercial positions declined by 4,275 to 62,584, which led to an increase in the negative value of the non-commercial net position to -36,584 against -35,942 a week earlier. GBP/USD closed higher last week at 1.1958 against 1.1892 in the previous week.
Indicators' signals:
The GBP/USD pair is trading below the 30 and 50 daily moving averages. It indicates that bulls are losing the upper hand.
Moving averages
Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differ from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
If GBP/USD grows, the indicator's upper border at 1.2310 will serve as resistance.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked 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 the short and long positions of non-commercial traders.
