Yesterday, the pound/dollar pair formed only one entry signal. Let's have a look at the 5-minute chart and see what happened there. In my morning review, I mentioned the level of 1.2065 as a possible entry point. A decline in the price and a false breakout at this level generated a sell signal. As a result, the pair regained more than 40 pips in the second half of the day. No more signals were formed for the rest of the day.
For long positions on GBP/USD:
On Thursday, there are no major events in the UK economic calendar except for the speech by BoE MPC Sir Jon Cunliffe. So, the pound may try to recover from yesterday's losses caused by the FOMC minutes release. If the pair comes under pressure in the first half of the day, bulls will have to protect yesterday's low of 1.2037. A decline and a false breakout at this level will create a buy signal. This may send the pair higher to test 1.2096 below which moving averages support the bears. If the price settles above 1.2096 and tests it downwards, I will bet on the uptrend in GBP/USD all the way to the high of 1.2142 which serves as an upper line of the sideways channel. A break above this range will pave the way to the next target of 1.2177 where I'm going to take profit. If bulls fail to open positions at 1.2037 in the first half of the session, which cannot be ruled out, bears will assert their strength more aggressively, and the pressure on GBP/USD will increase. If so, I would recommend opening long positions only at the next support of 1.1988 and only in case of a false breakout. I will buy GBP/USD right after a rebound from the monthly low of 1.1954, bearing in mind an intraday correction of 30-35 pips.
For short positions on GBP/USD:
Bears managed to test all their targets yesterday and are now ready to retest the support of 1.2037 which was formed on Wednesday. It would be reasonable to sell the pair only when bears show more activity at the new resistance of 1.2096. This is a key level, so its breakout would be a good reason to sell the pair. A rise to this level and its false breakout amid a lack of fundamental events may form good entry points into short positions. After that, GBP/USD may decline to the key support of 1.2037 where bulls were actively fighting for the pair yesterday. A breakout and a retest of this range will cancel the plans of the bulls to develop a further upside correction. So, bears will increase their presence in the market, generating a sell signal and pushing the price down to 1.1988. The level of 1.1954 will act as the lowest target and its retest will indicate the resumption of the downtrend. This is where I'm going to take profit. If GBP/USD rises and bears are idle at 1.2096, bulls will continue to enter the market. In this case, bears will retreat until a false breakout at the next resistance of 1.2142 will create an entry point into short positions. If nothing happens there as well, I will sell GBP/USD from the high of 1.2177, considering a 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 that bears attempt to return to the market.
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 1.2100 will serve as resistance. In case of a decline, the lower band of the indicator at 1.2025 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.
