In my morning forecast, I pointed out the level of 1.2263 and recommended making entry decisions based on it. Let's take a look at the 5-minute chart and analyze what happened there. The drop and the formation of a false breakout at this level provided an excellent entry point for buying the pound, but the upward movement was only about 10 points, after which the pair continued to fall. The technical picture changed in the second half of the day.
To open long positions on GBP/USD, the following is required:
Federal Reserve Chairman Jerome Powell's tough stance can exert even more pressure on the pair, and a significant rise in the pound in the second half of the day can only be expected in the event of a return to his dovish position mentioned at the November 1st meeting earlier this year. For buying, the focus should be on the nearest support at 1.2230, where the pound is currently heading. The formation of a false breakout there will provide an entry point for long positions, with the target of returning to the resistance at 1.2268, formed based on the first half of the day. A breakout and consolidation above this range will allow buyers to feel more confident in the market, providing a signal to open long positions with an exit towards 1.2305, where the moving averages are aligned in favor of bears. The furthest target will be the area of 1.2335, where I will take a profit. In the scenario of a pair decline and the absence of activity at 1.2230 by buyers in the second half of the day, it may completely extinguish bullish hopes and any further development of an upward trend. In such a case, only a false breakout around the next support at 1.2189 will provide a signal for opening long positions. I plan to buy GBP/USD on a rebound only from 1.2157 with the goal of a pair's correction down by 30-35 points within the day.
To open short positions on GBP/USD, the following is required:
Sellers continue to control the market and threaten to fully gain control of it. For this, protecting the resistance at 1.2268 will be sufficient, and a test of this level may occur after Jerome Powell's speech. A false breakout will provide a chance for further correction and a signal to open short positions in anticipation of a move towards the 1.2230 support. A breakout and retest of this range from the bottom up will deal a more serious blow to buyers' positions, leading to the triggering of stop-loss orders and opening the path to 1.2189. The next target will be the area of 1.2157, where I will make a profit. Testing this level will indicate the formation of a new bearish market. In the case of GBP/USD rising and the absence of activity at 1.2268 in the second half of the day, demand for the pound will return, and buyers will have a chance to stop this bearish momentum. In this case, I will postpone selling until a false breakout at 1.2305. If there is no downward movement there, I will sell GBP/USD on a rebound from 1.2335, but only with the expectation of a pair's correction down by 30-35 points within the day.
In the COT (Commitment of Traders) report for October 31, there was a reduction in both long and short positions, but this did not significantly change the balance of power, as the data does not reflect the recent important US labor market report. The market hardly reacted to the fact that the US Federal Reserve left its policy unchanged, but the reaction to weak job growth figures led to active growth in GBP/USD at the end of last week, which may impact the pair's future medium-term trend. The more talk there is about the possibility of US interest rates remaining unchanged in December this year due to the first signs of economic weakness, the more pressure there will be on the US dollar and the more expensive the pound will become. In the latest COT report, it is mentioned that long non-commercial positions decreased by 3,407 to 63,712, while short non-commercial positions decreased by 1,672 to 84,083. As a result, the spread between long and short positions increased by 210. The weekly closing price decreased to 1.2154 from 1.2165 the week before.
Indicator Signals:
Moving Averages:
Trading is below the 30 and 50-day moving averages, indicating the potential for further pound declines.
Note: The author examines the period and prices of moving averages on the hourly chart H1, which differs from the general definition of classical daily moving averages on the daily chart D1.
Bollinger Bands:
In the event of a decrease, the lower boundary of the indicator at around 1.2250 will act as support.
Indicator Descriptions:
- Moving Average (determines the current trend by smoothing volatility and noise). Period 50. Marked in yellow on the chart.
- Moving Average (determines the current trend by smoothing volatility and noise). Period 30. Marked in green on the chart.
- MACD Indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). Fast EMA period 12. Slow EMA period 26. SMA period 9.
- Bollinger Bands. Period 20.
- Non-commercial traders - speculators such as individual traders, hedge funds, and large institutions using the futures market for speculative purposes, subject to specific 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.
- The net non-commercial position is the difference between the short and long positions of non-commercial traders.
