Last Friday, 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 1.2755 as a possible entry point. A decline and false breakout at this mark generated a great buy signal, which sent the pair up by 20 pips, but then the bulls gradually became less active. In the afternoon, a failed attempt to break above 1.2790 produced a sell signal. As a result, the pound fell by more than 90 pips. The bulls' attempt to defend the support at 1.2704 generated a good buy signal, which resulted in a small correction by 25 pips.
For long positions on GBP/USD:
Mixed UK data on the Manufacturing PMI, Services PMI and composite PMI supported the pound in the first half of the day, but the bears being active near the one-month high led to a downward movement, while mixed US PMI data resulted in a sell-off and another bigger movement. There is nothing scheduled for today besides the speech of Bank of England Deputy Governor for Monetary Policy Ben Broadbent, so the pound is unlikely to receive the support it needs in the first half of the day. In this case, after the recent sell-off, before you consider buying, we would like to see a false breakout at 1.2687, which will be tested in the near future. This may lead to an upward movement in the first half of the day, and you should aim for 1.2718, which is in line with the bearish moving averages. A breakout and consolidation above this range will strengthen the demand for the pound and open the way to 1.2754. The furthest target will be the 1.2790, where I plan to take profits. If the pair falls and there is no buying activity at 1.2687, and this will likely happen, only a false breakout near the next support at 1.2653 will signal opening long positions. I plan to buy GBP/USD immediately on a rebound from 1.2615, aiming for an intraday correction of 30-35 pips.
For short positions on GBP/USD:
Sellers have the chance to push the pair to correct lower. In this case, it would be nice to see bears protecting the resistance at 1.2718, a breakout of which may take place in the near future. Forming a false breakout on this area will be an excellent reason to open short positions at the beginning of the week, with the goal of moving the price down to the nearest support at 1.2687. 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 1.2653, where the bulls will be active. The next target would be the 1.2615 area, where I will take profits. If GBP/USD rises and there is no activity at 1.2718 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 1.2754. If there is no downward movement there, I will sell GBP/USD immediately on a rebound from from 1.2790, 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 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 1.2650 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.
