Yesterday was not a good day, but we still managed to get some signals. Let us take a look at the 5-minute chart to clear up the situation. Earlier, I highlighted the 1.2350 level. Growth and a false breakout gave a good sell signal, which, unfortunately, did not materialize. After falling a bit, the demand for the pound returned, which pushed the pair to 1.2350. As soon as it started to trade above this level, I went out of the short positions. During the US session, after the active growth, the decline to 1.2350 gave a good buy signal, and GBP later moved up by more than 80 pips.
When to go long on GBP/USD:
There are no important UK statistics today, so the focus will be on RICS house price balance data and report on credit conditions in the UK. However, it is more interesting to see how things will unfold today as strikes spread across the UK because of the government's refusal to allocate money for another wage increase. The pair could be under a lot of pressure during the European session, and GBP could enter a bearish correction. A decline and false breakout around 1.2311, where the moving averages are benefiting the bulls, can establish a stronger uptrend and give the GBP a chance to rise above 1.2371. In case it settles in this mark if we receive good news on Great Britain, GBP/USD may surge to a monthly high of 1.2429. If the price continues to climb after the news release, it may break this level and downwardly test it. In this case, it will rise to 1.2484, where traders should lock in profits. If the pound/dollar declines and bulls fail to protect 1.2311, bears will continue pushing the price lower. In the event of this, traders should avoid buying the asset until the price hits 1.2257. There, traders may go long only after a false breakout. It is also possible to open long positions just after a rebound from 1.2194, expecting a correction of 30-35 pips intraday.
When to go short on GBP/USD:
Yesterday, the bulls couldn't grab the monthly highs due to profit taking, and the lack of demand in the Asian session may indicate a further development of the bearish correction. Today, the bears must defend 1.2371, a new resistance level formed yesterday. The political situation in Britain as well as the massive strikes may negate all the bulls' attempts to continue the uptrend. In case the pair rises, only a false breakout at 1.2371 will give a sell signal. In this case, the pair may fall to 1.2311, where the moving averages are benefiting the bulls. A breakout and an upward test of this range will cross out the bullish prospects and give a sell signal with the target at the low of 1.2257. A more distant goal will be the area of 1.2194, where traders should lock in profits. If GBP/USD grows and bears fail to protect 1.2371, a new bullish trend will continue to form. In this case, the pair may climb to 1.2429. A false breakout of this level may give a sell signal. If there is no activity there, the pound may jump to 1.2484. There, traders are better to sell the asset just after a rebound, expecting a decline of 30-35 points within the day.
COT report
According to the COT report from January 10, the number of short positions jumped, whereas the number of long positions slumped. Notably, the report does not cover the US inflation figures published on Thursday. The data had a considerable influence on the market situation. That is why now, the situation is different. A decline in the US price growth recorded in December boosted demand for risk assets, including the British pound. Strong data on the UK labor market will allow the pound sterling to consolidate on the current highs and form a new uptrend. Traders should also pay attention to the comments that will be provided by the BoE's and the Fed's officials. The recent COT report unveiled that the number of short non-commercial positions increased by 1,537 to 65,463, while the number of long non-commercial positions dropped by 7,618 to 36,007, which led to a rise in the negative value of the non-commercial net position to -29,456 against -20,301 a week earlier. Notably, the negative value of the non-commercial net position has been rising for the third day in a row. This points to the fact that big traders do not expect an increase in the pound sterling and try to sell the asset. Be attentive when buying the asset at the current highs. The weekly closing price rose to 1.2182 from 1.2004.
Indicator signals:
Moving averages
Trading is carried out above the 30-day and 50-day moving averages. It indicates that the bulls are trying to seize the initiative.
Note: The author considers the period and prices of moving averages on the one-hour chart which differs from the general definition of the classic daily moving averages on the daily chart.
Bollinger Bands
If GBP/USD rises, the indicator's upper limit at 1.2400 will serve as resistance.
Indicator description:
- Moving average (MA) determines the current trend by smoothing volatility and noise. Period 50. Colored yellow on the chart.
- Moving average (MA) determines the current trend by smoothing volatility and noise. Period 30. Colored green on the chart.
- Moving Average Convergence/Divergence (MACD). Fast EMA 12. Slow EMA 26. SMA 9.
- Bollinger Bands. Period 20
- Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial positions are the total long position of non-commercial traders.
- Non-commercial short positions are the total short position of non-commercial traders.
- Total non-commercial net position is the difference between the short and long positions of non-commercial traders.
