Last Friday, 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 morning forecast, I indicated the level of 1.2571 and planned to make decisions on entering the market from there. The pair fell, but a false breakout was not formed. Strong UK data did not save the market, as the pair continued to trade within the sideways channel. In the afternoon, a breakout and retest of 1.2571 generated a sell signal, but after falling by 17 pips, the pressure on the pair weakened. Regaining control of 1.2571 and a downward test produced a buy signal and the pair rose to the area of 1.2608.
For long positions on GBP/USD:
The surprise surge in UK retail sales maintained demand for the pound on Friday morning. After the pair initially fell due to strong U.S. inflation data, the bulls returned to the market, capitalizing on grim U.S. real estate market data that revealed serious issues in January. Today, the UK economic calendar is empty, so buyers have a good chance of continuing the bullish correction.
The most preferable scenario for me in the current situation would be to buy during a decline near 1.2597 - a new support established on Friday. This is in line with the bullish moving averages. A false breakout of this level would serve as a buy signal, aiming for a recovery towards 1.2635. A breakout and consolidation above this range will strengthen the demand for the pound and open the way to 1.2663, which would be a strong correction for the pound at the beginning of the week. The ultimate target will be the 1.2690 high where I intend to take profit. In a scenario where GBP/USD falls and there are no buyers at 1.2597, we might see another pound sell-off, which will revive the bear market. In such a scenario, only a false breakout near the next support at 1.2561 would provide an entry signal. I would immediately go long on a bounce from the 1.2535 low, bearing in mind an intraday correction of 30-35 pips.
For short positions on GBP/USD:
Considering that the pound rose in today's Asian session, the GBP/USD pair has a good chance of recovering further. Therefore, I am not in a rush to sell. In case GBP/USD attempts to recover in the first half of the day, I plan to sell only after forming a false breakout near the new resistance at 1.2635. This would confirm the presence of big players in the market, creating a sell signal that will give bears a chance to move the price down to 1.2597 - an intermediate support. A breakout and a retest from below will deal a more serious blow to the buyers' positions, leading to the removal of stop orders and open the way to 1.2561, where I anticipate big buyers to show up. The next target will be 1.2535, where I plan to take profits. If GBP/USD grows and there are no bears at 1.2635, the bulls will try to continue the upward correction. In such a case, I will postpone sales until the price performs a false breakout at 1.2663. If there is no downward movement there, I will sell GBP/USD on a bounce right from 1.2690, considering a downward correction of 30-35 pips within the day.
COT report:
In the COT report (Commitment of Traders) for February 6, we find an increase in both long and short positions. Although traders already have a clear view of the Bank of England's future policy, which intends to actively control inflation, the pound is not in a rush to show growth. Recent statements by BoE officials indicate a soft wait-and-see stance that can change at any moment – if, of course, the data allows. In the near future, we can look forward to UK reports on the labor market, wage growth, and inflation, which can significantly change the balance of power in the market. But don't forget to consider the Federal Reserve's wait-and-see position, so uncertainties are much greater now than before. The latest COT report said that long non-commercial positions rose by 6,437 to 83,936, while short non-commercial positions increased by 6,115 to 49,461. As a result, the spread between long and short positions decreased by 2,374.
Indicator signals:
Moving Averages
The instrument is trading above the 30 and 50-day moving averages. It indicates that GBP/USD is likely to rise further.
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 falls, the indicator's lower boundary near 1.2561 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.
