GBP/USD: plan for the European session on December 16. COT reports. Pound remained in a horizontal channel with the prospect of a breakthrough of 1.3270

To open long positions on GBP/USD, you need:

Several signals to enter the market were formed yesterday. Let's take a look at the 5 minute chart and see what happened. In my morning forecast, I paid attention to the 1.3254 level and advised you to make decisions on entering the market. Traders were completely focused on the report on the growth of inflation in the UK, which turned out to be much higher than economists' forecasts, which prompted traders to build up long positions. A breakthrough and reverse test of 1.3254, which is clearly visible on the chart, resulted in forming a signal to buy the pound in continuation of the morning trend. However, before the results of the Federal Reserve meeting was announced, the pound did not sharply rise and closer to the middle of the day the bulls lost control over it, allowing the price to fall below. A reverse test of 1.3254 and failure to return the level resulted in forming a sell signal, which resulted in a 30 points decline to the 1.3222 area. A momentary breakdown of this range with a reverse test from the bottom up led to another sell signal. Considering that the pound was expected to fall after the Fed meeting, the entry point from 1.3222 came in handy as never before. As a result, the pair fell by another 30 points. The bulls formed a false breakout at 1.3191 after the central bank's decision was announced, which provided an excellent entry point into long positions from there, which led to an 80 points rise in the pound. And what were the deals on EURUSD yesterday?

Today is a very important day, as the results of the Bank of England meeting on monetary policy will be published. Given yesterday's inflation, it will be difficult for BoE Governor Andrew Bailey to maintain a loose monetary policy. In case of hawkish hints about the coming changes in policy, the pound could significantly strengthen its position. Therefore, the bulls' main task for today is to protect and form a false breakout in the 1.3230 area where the moving averages are, playing on the side of the bulls. In this case, you can open long positions in hopes that the pound rises and the next test of resistance at 1.3270, which was formed at the end of yesterday. A breakthrough and test of 1.3270 from top to bottom, as well as strong data on the growth of activity in the manufacturing and services sectors in the UK will provide an additional entry point for buying GBP/USD with the prospect of strengthening to 1.3307. A breakdown of this range will open the possibility of renewing the 1.3340 high, where I recommend taking profits. This level will be available only based on the results of the BoE meeting and Bailey's hawkish rhetoric. Resistance at 1.3368 is a more distant goal. The bulls will have problems again in case the pound falls during the European session and lack of activity at 1.3230. For this reason, I advise you to take your time with long positions. Forming a false breakout near the next low of 1.3204, formed at the end of yesterday, will provide an entry point to buy the pound. It is possible to buy GBP/USD immediately on a rebound in the area of 1.3173, or even lower - from 1.3111, counting on a correction of 20-25 points within the day.

To open short positions on GBP/USD, you need:

All the bears need now is to protect the 1.3270 level. It is impossible to release the pound higher in any way, as this will lead to forming a new upward trend for the pair, as well as the demolition of a number of stop orders and a more active recovery. Forming a false breakout at 1.3270 will provide the first good entry point to short positions with a subsequent decline to the 1.3230 area - a kind of middle of a new horizontal channel. An active struggle will unfold for this level, since there are moving averages playing on the side of the bulls. A breakthrough of 1.3230 will create new problems for the bulls and keep the pair in the descending channel. A reverse test of this range from the bottom up will give an excellent entry point, which will push GBP/USD to the lows of 1.3204 and 1.3173, where I recommend taking profits. Support at 1.3111 will be a more distant goal, but we can only fall through it after the BoE meeting and if the Committee maintains a soft position regarding the future monetary policy. In case the pair grows during the European session and the bears are not active at 1.3270, it is best to postpone selling until the larger resistance reaches 1.3307. I also recommend opening short positions there only in case of a false breakout. Selling GBP/USD immediately on a rebound is possible only from a large resistance at 1.3340, or even higher - from a new high in the 1.3368 area, counting on the pair's rebound down by 20-25 points within the day.

I recommend for review:

The Commitment of Traders (COT) reports for December 7 revealed that both short and long positions decreased. Considering the almost equal reduction of positions, this did not lead to serious changes in the negative delta. Bad data on the UK economy, which came out at the end of last week, clearly spoiled the mood of the buyers of risky assets, counting on an upward correction in the pair ahead of the Bank of England meeting. This week, BoE Governor Andrew Bailey will share his stance on the future of monetary policy. If it continues to be dovish in nature, most likely the pressure on the pound will only grow, as the representatives of the Federal Reserve, on the contrary, are going to curtail stimulus measures, which should support the US dollar. High inflation continues to be the main reason why the BoE may change its mind with the preservation of stimulus measures, however, uncertainty will remain until the results of the meeting on December 16 are announced. An equally serious problem for the UK is the new Omicron coronavirus strain, which could lead to another lockdown and the country's quarantine. So far, the authorities have to closely monitor the development of the situation with the new strain, which negatively affects the economy at the end of this year. The December 7 COT report indicated that long non-commercial positions declined from 52,099 to 48,950, while short non-commercials dropped from 90,998 to 87,227. This kept the negative non-commercial net position almost unchanged. : -38,277 versus -38,899 a week earlier. The weekly closing price dipped slightly from 1.3314 to 1.3262.

Indicator signals:

Trading is carried out above 30 and 50 moving averages, which indicates an attempt by the bulls to pull the market to their side again.

Moving averages

Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the daily D1 chart.

Bollinger Bands

A breakthrough of the upper border of the indicator in the area of 1.3280 will lead to a new wave of growth of the pound. A breakout of the lower border of the indicator in the area of 1.3204 will increase the pressure on the pair.

Description of indicators