Yesterday, the pair formed several excellent entry signals. Let's have a look at the 5-minute chart and see what happened there. In my morning review, I mentioned the level of 1.2079 as a possible entry point. After the pound tumbled amid slower-than-expected inflation in the UK, a false breakout at 1.2079 generated a great entry point into long positions. As a result, GBP/USD jumped by more than 25 pips but stopped there. In the second half of the day, bears broke through 1.2079 and retested it, forming a sell signal which sent the pound down by more than 80 pips. Bears paused near the level of 1.1990 where a false breakout created a buy signal which brought us 40 pips in profit.
For long positions on GBP/USD:
The UK CPI report showed that inflation slowed down more than expected. This caused a big sell-off in the pound which was also intensified by better-than-expected data on US retail sales. A strong economy will force the US Federal Reserve to continue its rate-hiking cycle which is what is supporting the US dollar right now. Today, markets may pay attention only to the speech by BoE MPC member Huw Pill which is scheduled at the time of the New York session. So, the pound may again come under pressure at this point. I would recommend focusing on the nearest support at 1.2033 which serves as an interim target. This is where I'm going to be looking for buying opportunities after a false breakout at 1.2030. I will buy the pound with the target at 1.2079 below which the moving averages support the bears. I will bet on the further uptrend in GBP/USD and its rise to the high of 1.2130 only if the price settles above 1.2079 and retests it from top to bottom. A break above this range will pave the way to the next upward target at 1.2178 where I'm planning to lock in profits. If bulls fail to open positions at 1.2033, GBP/USD will come under more pressure. In this case, I would advise you to go long only near the next support at 1.1990 and only in case of a false breakout. I will buy GBP/USD right after a rebound from the level of 1.1936, keeping in mind an intraday correction of 30-35 pips.
For short positions on GBP/USD:
Bears are now in full control of the market. All they need is to bring the price back below 1.2033. Yet, they also have to protect the level of 1.2079. In current conditions, this would be a perfect signal to sell the pair. A rise and a false breakout of this level may generate a sell signal and send the pair down to 1.2033. Its breakout and a retest will cancel the plans of the bulls to recover quickly after yesterday's sell-off. If so, bears will increase their presence in the market and may form a sell signal with the target at 1.1990. The level of 1.1936 will serve as the lowest target and its retest will indicate the continuation of the downtrend. This is where I'm going to take profit. In case GBP/USD rises and bears are idle at 1.2079, bulls may regain control of the market. Bears will retreat until new positive data on the US economy is out. If so, only a false breakout at the next resistance of 1.2130 will form an entry point into short positions. If nothing happens there as well, I will sell GBP/USD from the high of 1.2178, considering a possible pullback of 30-35 pips within the day.
COT report:
Due to a technical failure of the CFTC that has been going on for more than two weeks, new COT reports continue to be delayed. The most recent data was published on January 24.
The Commitments of Traders report for January 24 recorded a sharp drop in both long and short positions. However, this decline was within an acceptable range, given the situation the UK government is currently dealing with. The UK authorities are facing strikes and demand for higher wages while trying to bring inflation lower. According to the latest COT report, short positions of the non-commercial group of traders decreased by 7,476 to 58,690 while long positions dropped by 6,713 to 34,756. As a result, the negative value of the non-commercial net position declined to -23,934 from -24,697 recorded a week ago. Such moderate changes do not change the market balance. So, we should continue monitoring the economic situation in the UK and the decisions of the BoE. The weekly closing price went up to 1.2350 from 1.2290.
Indicator signals:
Moving Averages
Trading below the 30- and 50-day moving averages indicates a further decline in the pound.
Please note that the time period and levels of the moving averages are analyzed only for the H1 chart, which differs from the general definition of the classic daily moving averages on the D1 chart.
Bollinger Bands
If the pair advances, the upper band of the indicator at 1.2060 will serve as resistance. In case of a decline, the lower band of the indicator at 1.1990 will act as support.
Description of indicators:
• A moving average of a 50-day period determines the current trend by smoothing volatility and noise; marked in yellow on the chart;
• A moving average of a 30-day period determines the current trend by smoothing volatility and noise; marked in green on the chart;
• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA with a 12-day period; Slow EMA with a 26-day period. SMA with a 9-day period;
• Bollinger Bands: 20-day period;
• 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 represent the total number of long positions opened by non-commercial traders;
• Short non-commercial positions represent the total number of short positions opened by non-commercial traders;
• The non-commercial net position is the difference between short and long positions of non-commercial traders.
