GBP/USD: plan for the European session on January 5. COT reports. Pound bulls took a rest at 1.3550

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

Every time the bulls are active and approach the big resistance of 1.3550, they have problems. However, the fact that the bulls kept the pair within the upward price channel at the very beginning of this year speaks of good prospects for further strengthening of the GBP/USD in the area of new highs. Today there are no important fundamental statistics for the UK, so I suggest all the emphasis be saddled with the breakthrough of 1.3550 and the protection of the 1.3510 support.

The bulls' primary task for today is to protect the new support at 1.3510, just below which are the moving averages, playing on the bulls' side. This level is very important, as its breakthrough can force traders to take profits from the highs, which will lead to forming pressure on the pound and move trading into the wide horizontal channel at 1.3431-1.3553. Forming a false breakout at 1.3510 generates a signal to buy GBP/USD with the prospect of a continuation of the bull market aimed at surpassing 1.3553, which could not be done either yesterday or at the end of last year. A breakthrough and test of this level from top to bottom will provide another entry point and strengthen the bulls' positions in order to continue building a bullish trend and renew highs: 1.3605 and 1.3649. The 1.3694 level is a much more distant target, which is where I recommend taking profits. In case the pound falls during the European session and lack of activity at 1.3510, it is best to postpone buying to the level of 1.3471. Forming a false breakout there will provide an entry point, counting on the preservation of the bullish momentum. It is possible to buy GBP/USD immediately on a rebound from 1.3431, or even lower - from a low of 1.3409, counting on a correction of 20-25 points within the day.

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

Again, the bears failed to offer anything below 1.3553, which creates certain problems for further growth. It is very important to protect this level today. Considering that there are no important statistics for the UK in the first half of the day today, only the formation of a false breakout at this level creates the first entry point into short positions, followed by a decline to the 1.3510 area, which will have to be fought for, since the bulls clearly do not intend to let go of the upward trend at the beginning of this year. A breakthrough at 1.3510 and a reverse test from the bottom up will increase the pressure on the pound and bring it down to the next support at 1.3471. Only the consolidation and the reverse test of 1.3471 from the bottom up can create a new entry point into short positions with the prospect of a decline in GBP/USD to 1.3431 and 1.3409, where I recommend taking profits. In case the pair grows during the European session and bears are weak at 1.3553, it is best to postpone selling until a larger resistance at the base of the 36th figure. I also recommend opening short positions there only in case of a false breakout. Selling GBP/USD immediately on a rebound is possible from a large resistance at 1.3649, or even higher - from a new high in the 1.3694 area, counting on the pair's rebound down by 20-25 points within the day.

I recommend for review:

The Commitment of Traders (COT) report for December 21 revealed that there was a decline in both short and long positions. The number of long positions has shrunk much more, which has increased the negative value of the delta. Traders have already priced in the Fed and BoE meetings. However, the pound sterling decreased sharply after a rally fueled by an interest rate hike. Only a week later, and we do not have these data yet, the British currency managed to recoup all the losses and reached the December highs. Therefore, I do not recommend taking the current report seriously as it does not reflect the real situation in the market. If you look at the overall picture, the prospects for the British currency are bright. Traders continue to open long positions on the pound sterling following the Bank of England's decision to raise the benchmark rate. A more aggressive stance of the regulator next year will certainly strengthen the bullish trend for the GBP/USD pair. High inflation remains the main reason why the Bank of England may hike the interest rate again. The US dollar may also gain momentum as the Fed plans to raise the key rate in the spring of next year, which makes the US dollar a more attractive asset. The COT report for December 21 showed that the number of long non-commercial positions fell 20,824 from 29,497, while the number of short non-commercial positions declined to 78,510 from 80,245. This led to an increase in the negative non-commercial net position to -57,686 from -50,748. The weekly closing price has hardly changed: 1.3209 versus 1.3213 a week earlier.

Indicator signals:

Trading is carried out above 30 and 50 moving averages, which indicates the continued growth of the pound in the short term.

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

If the pair falls, the lower border of the indicator at 1.3490 will act as a support. If the pair grows, the upper border of the indicator in the area of 1.3553 will act as a resistance.

Description of indicators