Yesterday, the pair formed several entry signals. Let's have a look at what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.2459 as a possible entry point. A decline and false breakout at this mark produced a buy signal, but after rising by 15 pips, the pair was under pressure again. The bulls' attempt to defend 1.2425 also produced a buy signal, but a bullish breakout did not follow.
For long positions on GBP/USD:
The pound fell after the UK inflation report. There is nothing to look forward to today except the speech of the Bank of England MPC member Swati Dhingra, so the pound will have a chance to recover after falling on Wednesday. Under current conditions, it's best to defend the nearest support at 1.2375, where a false breakout will signal market entry into long positions in building a bullish scenario, which we observed at the beginning of the week. The target will be the resistance at 1.2421, which is in line with the bearish moving averages. A breakout and consolidation above this range will produce a buy signal, potentially targeting the 1.2459 area. The ultimate target is found at 1.2502 where I will be taking profits. Should the pair decline and buyers show no initiative at 1.2375, things will go bad, as the sellers will get a chance to overlap the pound's substantial growth on Tuesday. A false breakout near the next support level at 1.2340 will signal the opportunity to open long positions. I plan to buy GBP/USD immediately on a rebound from 1.2304, aiming for a correction of 30-35 pips within the day.
For short positions on GBP/USD:
The sellers are still control of the market, and the fact that there are no scheduled reports for today may even benefit them, provided that the pair continues to trade below 1.2421. A false breakout at this mark will generate a sell signal with a movement towards the support level at 1.2375. Breaching this level and subsequently retesting it from below will deal a more serious blow to the bulls' positions, lead to a cascade of stop orders, and open a path to 1.2340. The more distant target will be 1.2304, where I'd be taking profits. If GBP/USD grows and there are no bears at 1.2421, which will only happen if Dhingra delivers tough remarks, the bulls will get a chance to bring back the uptrend. In this case, I will postpone selling until a false breakout at 1.2459. If downward movement stalls there, one can sell the British pound on a bounce from 1.2502, bearing in mind a 30-35-pips downward intraday correction.
COT report:
The Commitments of Traders (COT) report for November 7 showed a decrease in both long and short positions, but this did not significantly alter the market dynamics. Persistent pressure on the pound was observed throughout the week as the latest report on the UK's economic growth rate was disappointing, hinting at the real chances of a recession in Q4 this year. Considering the Bank of England's statements on maintaining high interest rates for an extended period, the chances of a substantial rise in the British pound remain slim. The only factor that could change this dynamic is weak US data indicating a further reduction in price pressures. The more the talks about unchanged US rates in December, the more pressure there will be on the US dollar, making the pound more valuable. The latest COT report states that non-commercial long positions decreased by 6,180 to 57,532, while non-commercial short positions fell by 10,299 to 73,784. Consequently, the spread between long and short positions increased by 310. The weekly closing price rose to 1.2298 from 1.2154.
Indicator signals:
Moving Averages
Trading below the 30- and 50-day moving averages indicates resumed pressure on 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 GBP/USD declines, the indicator's lower border near 1.2375 will serve 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.
