Yesterday, GBP/USD generated several signals to enter the market. Now let's look at the 5-minute chart and try to figure out what actually happened. In my previous forecast, I indicated the level of 1.2698 and planned to make decisions on entering the market from there. The decline and a false breakout at this level suggested an entry point for buy positions, but a major upward movement did not take place. In the afternoon, a similar story happened, but this enabled opening short positions at 1.2722. A false breakout and entry into short positions did not bring the expected result.
What is needed to open long positions on GBP/USD
Before looking at the technical picture of GBP/USD, let's look at what happened in the futures market. In the COT report (Commitment of Traders) for January 16, we find out a decline in short positions and an increase in long ones. Macroeconomic data released recently, especially any report related to inflation, allow the British pound to stay afloat. Lately, Bank of England's policymakers have made it clear that they will continue to keep interest rates at current highs and struggle against stubborn inflation even despite ongoing economy woes. This is both good and bad for the pound sterling. GBP may benefit in the short term, but the outlook is bearish in the long term, since normalization of GDP growth rates will take longer than expected. In the near future, activity data for January will shed light on the current state of affairs. The latest COT report said that long non-commercial positions rose by 5,546 to 66,230, while short non-commercial positions fell by 4,651 to 35,299. As a result, the spread between long and short positions increased by 1,480.
The economic calendar is empty today for the UK. The data of secondary importance is a report on the net volume of borrowed funds of the public sector. So, GBP/USD is likely to extend its growth. Interestingly, the buyers manage to update local highs every day, despite intraday downward retracements. The most preferable scenario for me in the current situation would be to buy during a decline after the formation of a false breakout in the area of 1.2709. This will give an entry point with an upward target at the resistance level of 1.2737. A break and test from top to bottom of this range will cement the chance of a further recovery in GBP/USD. In turn, this will allow traders to increase long positions. Eventually, the price could reach 1.2759. In case the price tops this level, we can talk about a breakout to 1.2783 – the highest point of the month. In a scenario where GBP/USD falls and there are no buyers at 1.2709, the sellers will have a chance to lock the pair in a sideways channel. If this happens, I will postpone long positions until the support at 1.2685 is tested. Traders will buy there only on a false breakout. You can open long positions on GBP/USD immediately on a dip from 1.2661, bearing in mind an intraday correction of 30-35 pips.
What is needed to open short positions on GBP/USD
The bears cannot stop the development of the bullish trend. The bulls' goal today is to protect the nearest resistance at 1.2737, where only a false breakout will provide an entry point with the view of a slight decline. I also expect the test of support at 1.2709, where the moving averages are passing, playing on the buyers' side. A breakout and a reverse test from the bottom to the top of this range will increase selling pressure on GBP/USD, giving the bears an advantage and providing another selling entry point with the aim of updating 1.2685, where I expect more active buyers. A lower target will be 1.2661, where I will take profits. If GBP/USD grows and there are no bears at 1.2737, the bulls will maintain an advantage, which will push the pair up to the next resistance area of 1.2759. I will sell there only on a false breakout. If there is no activity there, I advise you to open short positions on GBP/USD from 1.2783, anticipating the price dropping by 30-35 pips within the day.
Indicators' signals
Moving Averages
The instrument is trading above the 30 and 50-day moving averages. It indicates a further growth of GBP/USD.
Note: The period and prices of the moving averages are considered by the analyst on the 1-hour chart and differ from the general definition of classic daily moving averages on the daily chart.
Bollinger Bands
In case GBP/USD goes up, the indicator's upper border at about 1.2735 will act as resistance. Alternatively, if the instrument declines, the indicator's lower border at 1.2700 will serve as support.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked green on the chart.
- MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain 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.
- Total non-commercial net position is the difference between short and long positions of non-commercial traders.
