To open long positions on GBP/USD you need:
Yesterday, several market entry signals were formed, though not all of them were profitable. Let's observe the 5-minute chart and analyze it. In my morning forecast, I focused on the level of 1.3219 and recommended taking it into account while making decisions to enter the market. Evidently, the market continued to move before the significant meeting of the Federal Reserve System and Bank of England later this year. It is difficult to figure out the Bank of England's future policy and it is even more complicated to imagine how the Fed head is going to fight inflation without raising the interest rates. However, it is time to analyze the technical picture. The pair's growth in the first half of the day and formation of a false break at 1.3219 resulted in a strong signal to sell the pound further on the trend. However, to my regret, the signal led to losses. Later, a break at 1.3219 occurred, which passed without a reversed test, as I noted on the chart, so it was impossible to enter long positions from that level. Unsuccessful fixation above 1.3255 and formation of a false break there led to an excellent entry point to short positions in the pound, from which it is possible to get 35 pips. Today, the technical picture has changed a little. Besides, what were the euro entry points yesterday?
Another set of UK economy data is being issued today. Inflation will be a key focus. Its growth may have a significant impact on the British pound as it will make the Bank of England to reconsider its views on the monetary policy in the near future. The results of the meeting will be published tomorrow. The bulls' main target will be the defense and the formation of a false break near 1.3222 with the moving averages, favourable for buyers. Only in this case it is possible to open long positions, counting on the pound's growth and the next resistance test at 1.3254, from which an excellent sell signal was formed yesterday. A break and the test of 1.3254 from the top down will give an additional entry point to buy GBP/USD with the prospect of strengthening to 1.3286. A break of this range will also provide an opportunity to update the high at 1.3317, where I recommend taking profit. This level will be accessible only after the outcome of the Fed meeting. Resistance at 1.3349 is a further target. In case the pound declines during the European session and lacks activity at 1.3222, buyers will have difficulties again. Therefore, I advise traders not to rush to buy. Only formation of a false break near the next low, 1.3191, will give an entry point to long positions. This level is very significant from the technical point of view as its break will ruin buyers' efforts in the upward correction of the pair. It is possible to buy GBP/USD on a rebound around 1.3162 or even lower, from 1.3111, counting on intraday correction of 20-25 pips.
To open short positions on GBP/USD you need:
At the moment, bears have to defend the level of 1.3254. This task can be performed by analogy with yesterday. The pair must not move above 1.3254 as a break of this level will result in a number of stop-loss orders and more active recovery of the pair with a prospect of a downtrend break. A false break at 1.3254 will give a good entry point to short positions with the pair's further decline to the area of 1.3222, a kind of the middle of a new sideways channel. A fight for this level will start as the moving averages, favoring buyers, are there. A break of 1.3222 will cause new difficulties for bulls and keep the pair in the descending channel. A reversal test of this range from the bottom up will give an excellent entry point, pushing the GBP/USD pair to the lows: 1.3191 and 1.3162, where I recommend taking profits. A further target will be the support at 1.3111, however it is possible to reach it only after the Fed meeting. In case of a rise in the pair during the European session and weakness of sellers at 1.3254, it is better to postpone selling until the larger resistance at 1.3286. I also recommend opening short positions there only in case of a false break. It is possible to sell GBP/USD immediately on a rebound from the major resistance 1.3317, or even higher, from the new high in the area of 1.3349, counting on a pair bounce down by 20-25 pips during the day.
COT (Commitment of Traders) reports for December 7 recorded a reduction of both short and long positions. Taking into account almost equal decline in positions, it did not lead to serious changes of negative delta. Weak data on the UK economy released late last week obviously undermined the sentiment of the buyers of risky assets, who were expecting the upward correction of the pair before the Bank of England meeting. This week, central bank governor Andrew Bailey will give his stance on further monetary policy. If it is to be further dovish, the pressure on the pound will likely increase as the Federal Reserve representatives are planning to curtail their stimulus measures, which will be favourable for the US dollar. High inflation remains the main reason for the Bank of England to reconsider keeping the stimulus measures, however the uncertainty will remain till the outcome of the meeting on December 16. An equally serious problem for the UK is the new coronavirus variant Omicron, which could result in another lockdown. So far, the authorities have to monitor the situation with the new variant quite closely, which is negatively affecting the economy at the end of this year. The COT report for December 7 indicated that long non-commercial positions fell from 52,099 to 48,950, while short non-commercial positions declined from 90,998 to 87,227. Consequently, the negative non-commercial net position remaining almost unchanged: -38,277 versus -38,899 a week earlier. The weekly closing price reduced slightly from 1.3314 to 1.3262.
Indicator Signals:
Moving averages.
Trading is conducted above the 30 and 50 moving averages, indicating bulls are trying to force the market to favour them again.
Note. The period and prices of moving averages are considered by the author on hourly chart H1 and differ from the common definition of classic daily moving averages on daily chart D1.
Bollinger Bands.
A break of the upper boundary of the indicator in the area of 1.3244 will result in a new wave of pound growth. A break of the bottom boundary of the indicator around 1.3220 will increase the pressure on the pair.
Description of indicators
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. On the chart, it is marked in yellow;
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. On the chart, it is marked in green;
- MACD (Moving Average Convergence/Divergence - moving average convergence/divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20;
- Non-commercial traders are speculators, such as individual traders, hedge funds and large institutions, which 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;
- The total non-commercial net position is the difference between short and long positions of non-commercial traders.
