Yesterday, the pair formed several entry signals. Let's see what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.2142 as a possible entry point. A rise and false breakout at this mark produced a great sell signal, sending the pair down by more than 40 pips. In the afternoon, a breakout and consolidation above 1.2142 produced another buy signal, and the pair was up by 40 pips.
For long positions on GBP/USD:
The prospects of the Bank of England's interest rate pause exerted downward pressure on the pound, but buyers took advantage of this and tried to return to the market after Federal Reserve Chair Jerome Powell's speech, who hinted that soaring bond yields could mean the end of rate hikes. However, the pound eventually retreated and now it is under pressure again. Weak UK retail sales data and soft growth in the net borrowings of the UK public sector pushed the pound to fall at the beginning of the European session. I plan to buy after a false breakout at 1.2092, where the pound is heading now. In this case, it's best to act around the nearest resistance at 1.2145, which formed at the end of Thursday. This is in line with the bearish moving averages, so a breakout and consolidation above this range will boost buyers' confidence, making it possible to update 1.2180. The more distant target will be 1.2216, where I'd be taking profits. If the pair declines to 1.2092 without buyer activity, only a false breakout near the next support at 1.2066 will signal opening long positions. I plan to instantly buy GBP/USD on a bounce from the October low of 1.2038, aiming for an intraday correction of 30-35 pips.
For short positions on GBP/USD:
The bears have emerged, but in order to maintain control over the market it is crucial to defend the nearest resistance level at 1.2145. A false breakout at this level will produce a sell signal, which could push the pair towards the support level at 1.2092. Breaching this level and an upward retest will deal a more serious blow to the bulls' positions, providing a window to aim for 1.2066. The more distant target will be the monthly low of 1.2038, where I'd be taking profits. If GBP/USD grows and there are no bears at 1.2145, the demand for the pound will return and the bulls will have a chance to return the pair to the sideways channel. In such a scenario, I will refrain from going short until a false breakout at 1.2180. If downward movement stalls there, one can sell the British pound on a bounce from 1.2216, bearing in mind a 30-35-pips downward intraday correction.
COT report:
In the COT (Commitment of Traders) report for October 10, we see a decrease in both long and short positions. This suggests that traders made slight adjustments to their positions ahead of a rather important US inflation report released at the end of the previous week. Given that US prices continue to rise, it's likely to negatively impact the Federal Reserve and its decisions regarding interest rates. So, despite the pound's recent attempts at correcting higher, it could end with another sell-off and the pair could fall to new monthly lows. This week, there are quite a number of Federal Reserve officials who are scheduled to speak, which will serve as an important reference point. The latest COT report said that long non-commercial positions fell by 7,621 to 66,290, while short non-commercial positions dropped by 4,253 to 76,338. As a result, the spread between long and short positions narrowed by 836. The weekly price reached 1.2284 versus 1.2091 in the previous week.
Indicator signals:
Moving Averages
Trading below the 30- and 50-day moving averages indicates a possible decline in the pair.
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 declines, the lower band of the indicator near 1.2106 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.
