Yesterday, GBP/USD generated several signals to enter the market. Let's take a look at the 5-minute chart and figure out what actually happened. In my previous forecast, I paid attention to the level of 1.2671 and planned to make decisions on entering the market from there. The growth and the formation of a false breakout there produced an excellent entry point for selling the pound. As a result, the instrument fell by more than 25 pips. In the afternoon, buying activity in the area of 1.2644 on a false breakout led to growth back to 1.2671. However, the sellers were unwilling to give up. Finally, the bears gave a signal to open short positions, thus entailing another sell-off of the pound sterling.
What is needed to open long positions on GBP/USD
Today, the selling pressure on the pound sterling may escalate, especially after weak data on the manufacturing PMI in the UK and a speech by Bank of England Monetary Policy Committee member Hugh Pill. The dovish stance of the Bank of England's policymakers lately has dented confidence in the pound itself. In case GBP/USD declines, it's best to look for entry points into long positions around the nearest support at 1.2612, formed yesterday. Only a false breakout at this level will provide a suitable entry point into long positions, aiming for a recovery of the price to the area of 1.2649, where the moving averages, favoring the sellers, are located. A breakout and consolidation above this range will strengthen demand for the pound and open a path to 1.2678, bolstering the buyers' positions in anticipation of a new bullish trend. The highest target will be the high of 1.2706, where I plan to take profits. In a scenario of the pair's decline and lack of buying activity at 1.2612, the pound may undergo a major sell-off, and the sellers will take control of the market. In such a case, only a false breakout in the area of the next support at 1.2581 will confirm the correct entry point into the market. I plan to buy GBP/USD immediately on a dip from the low of 1.2559, bearing in mind an intraday correction of 30-35 pips.
What is needed to open short positions on GBP/USD
Yesterday, the bears did everything they could and regained the initiative. Today, I would like to find evidence of their presence in the market. A false breakout around 1.2649, just after the release of data from the UK, would be an excellent occasion for this. This will encourage traders to sell GBP/USD in anticipation of a further downward correction and a slide to the support area of 1.2612, around which an active fight may unfold. A breakout and a reverse test from below upwards of this area will deliver another blow to the bulls' positions, triggering their stop losses and opening a path to 1.2581, where I expect the activity of large buyers. The lowest target will be 1.2559, where profits will be taken. In the scenario of a rise in GBP/USD and lack of activity at 1.2649, the buyers will once again feel confident in anticipation of a new bullish sequence. In such a case, I will postpone short positions until a false breakout at 1.2678. If a downward movement does not happen there, I will sell GBP/USD immediately on a rebound from 1.2706, betting on a downward correction by 30-35 pips within the day.
In the COT report (Commitment of Traders) for February 20th, there was an increase in short positions and a reduction in long positions. The latest remarks by the Bank of England representatives that interest rates could be lowered, even though inflation does not reach the targeted 2.0%, are not mirrored in this report, so it should not be taken too seriously. Nevertheless, despite this, the pound sterling continues to rise, although, as the latest data show, it could end its climb at any moment, especially given the current hawkish stance of the US Federal Reserve. The latest COT report indicates that non-commercial long positions decreased by 2,934 to 87,602, while non-commercial short positions grew by 1,217 to 41,290. As a result, the spread between long and short positions narrowed by 2,351.
Indicators' signals
Moving averages
The instrument is trading below the 30 and 50-day moving averages. It indicates a further decline in 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 down, the indicator's lower border at about 1.2610 will act 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.
