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 1.2620 as a possible entry point. A decline and false breakout at 1.2620 generated a great buy signal, which sent the pair up by more than 30 pips. A breakout and retest of 1.2648 produced another buy signal, and traders could take another 20 pips. In the afternoon, a failed consolidation above 1.2722 generated a sell signal. As a result, the pair fell to 1.2682, where buyers became active again. A false breakout on this mark after the Bank of England meeting produced a buy signal and traders could take about 50 pips, as well as a similar entry point in the area of 1.2722.
For long positions on GBP/USD:
Yesterday, the Bank of England left rates unchanged, signaling that it is ready to keep them at current highs for as long as necessary. The central bank is not going to start cutting rates until inflation returns to the target level of around 2.0%. This strengthened the bulls' position and the pound hit monthly highs. Today, investors await the index of business activity in the manufacturing sector, the index of business activity in the services sector and the composite index in the UK. The reading is expected to show a slight increase. If the figures exceed economists' forecasts, the pound will continue to rise. If the data disappoints again, the pressure on the pair is likely to return, which I plan to take advantage of. In the current situation, after the strong growth, we would like to get an entry signal on the pound's decline. A false breakout at 1.2755 would be an ideal signal to buy the pound in the first half of the day while aiming for 1.2790. A breakout and consolidation above this range will strengthen the demand for the pound and open the way to 1.2820. The furthest target will be the 1.2853 area, where I plan to take profits. If the pair falls and there is no buying activity at 1.2755, and it will happen only in case of very weak UK PMI data, which may happen, only a false breakout near the next support at 1.2722 will signal opening long positions. I plan to buy GBP/USD immediately on a rebound from 1.2682, aiming for an intraday correction of 30-35 pips.
For short positions on GBP/USD:
Sellers have a small chance of building a downtrend. However, safeguarding the 1.2790 resistance along with the MACD divergence, as well as weak PMI data will be a great reason to open short positions at the end of the week, which will give bears a chance to move the price down to the nearest support at 1.2755. A breakout and a retest from below will deal a more serious blow to the bulls' positions, leading to the removal of stop orders and open the way to 1.2722, where the bulls will be active. The next target would be the 1.2682 area, where I will take profits. This is in line with the bullish moving averages. If GBP/USD rises and there is no activity at 1.2790 in the first half of the day, which is possible in such a bullish market, I will postpone sales until the price performs a false breakout at 1.2820. If there is no downward movement there, I will sell GBP/USD immediately on a rebound from from 1.2853, considering a downward correction of 30-35 pips within the day.
COT report:
The Commitments of Traders (COT) report for December 5 showed a sharp increase in long positions and a decline in short ones. The pound is still in demand, as Bank of England Governor Andrew Bailey and other BoE policymakers mentioned that the interest rates will need to be kept at the current level, if not raise them. This led traders to believe that they can buy the pair on every good downward move. The Federal Reserve and the BoE meetings will be held this week, which will be decisive. The soft tone of the US central bank will weaken the dollar's positions. If the situation is reversed, and if the Fed says it needs to wait longer to decide when to cut interest rates, and the Bank of England starts worrying about the prospects for economic growth, then it is inevitable that the pound will fall. The latest COT report indicates that non-commercial long positions rose by 5,063 to 66,359, while non-commercial short positions were down by 14,497 to 54,694. As a result, the spread between long and short positions increased by 3,025.
Indicator signals:
Moving Averages
Trading above the 30- and 50-day moving averages indicates a possible uptrend.
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 1.2680 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.
