GBP/USD: plan for the European session on January 18. COT reports. The pound may rise after the data on the labor market

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

Yesterday, only one signal was formed to enter the market in the afternoon. Let's look at the 5-minute chart and figure out the entry points. In my morning forecast, I paid attention to several levels, but due to excessively low volatility, we never managed to get to them. Due to the absence of tests 1.3653 and 1.3696 in the first half of the day, no entry points were formed into the market. During the US session, bears of the pound still achieved a breakthrough and a bottom-up test of the 1.3653 level, but the sell signal was realized only during today's Asian session, which brought about 30 points of profit.

Before analyzing the technical picture of the pound, let's look at what happened in the futures market. The Commitment of Traders (COT) reports for January 11 revealed that long positions had increased while short positions decreased - which indicates the pound's appeal after the Bank of England raised interest rates at the end of 2021. If you look at the overall picture, the prospects for the British pound look pretty good, and the observed downward correction makes it more attractive. The BoE's decisions continue to support buyers of risky assets in the expectation that the central bank will continue to raise interest rates this year, which will push the pound even higher. High inflation is still the main reason why the BoE will continue to tighten monetary policy. Last week, Federal Reserve Chairman Jerome Powell said that he would not shape events and rush to raise interest rates, especially in view of the sharp decline in retail sales in December 2021, which should cool down inflationary pressure a little. This led to a decrease in demand for the US dollar, which will allow pound bulls to continue building an upward trend. The COT report for January 11 indicated that long non-commercial positions increased from the level of 25,980 to the level of 30,506, while short non-commercial positions decreased from the level of 65,151 to the level of 59,672. This led to a change in the negative non-commercial net position from -39,171 to -29,166. The weekly closing price rose from 1.3482 to 13579.

Today we have a number of data on the UK labor market, which may have a positive impact on the direction of the British pound, which is showing a good downward correction. The bulls' main task for today is to protect the support of 1.3612, to which the bears persistently push the pair after the Asian sell-off. This level is very important, as a breakthrough can force traders to take profits, which will lead to forming a larger fall in the pound in the short term. Much will depend on the data on the unemployment rate, which is forecast unchanged in November compared to the previous month. Forming a false breakout at 1.3612 will give a signal to buy GBP/USD against a downward correction with the prospect of resuming the bull market aimed at crossing the resistance of 1.3656, above which the moving averages that limit the upward potential of the pair pass. A breakthrough and test of this level from top to bottom will create another entry point and strengthen the bulls' position with continued growth and an update of highs: 1.3696 and 1.3739. A more distant target will be the 1.3790 area, where I recommend taking profits. In case the pound falls during the European session and a lack of activity at 1.3612, it is best to postpone long positions to the level of 1.3566. Forming a false breakout there will provide an entry point in hopes of maintaining bullish momentum. You can buy GBP/USD immediately on a rebound from 1.3532, or even lower - from a low like 1.3496, counting on a correction of 20-25 points within the day.

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

Bears are still in control of the market. The primary task is to protect the 1.3656 range, which was recaptured in yesterday's US session. A sharp increase in the number of applications for unemployment benefits in the UK in December this year and the formation of a false breakout at the level of 1.3656 - all this will provide an entry point into short positions, followed by a decline to the area of 1.3612. We will have to fight hard for this level, as the bulls clearly do not intend to let go of the upward trend. Crossing 1.3612 will lead to the demolition of a number of bulls' stop orders, and a reverse test from the bottom up will increase pressure on the pound and dump it to the next support of 1.3566, where there is a large bull counting on new figures. Only the consolidation and the reverse test of 1.3566 from the bottom up will give a new entry point into short positions with the prospect of a decline in GBP/USD by 1.3532 and 1.3496, where I recommend taking profits. If the pair grows during the European session and the bears are weak at 1.3656, it is best to postpone selling to a larger resistance of 1.3696. I also advise you to open short positions there only in case of a false breakout. You can sell GBP/USD immediately for a rebound from a high like 1.3739, or even higher - from the area of 1.3790, counting on the pair's rebound down by 20-25 points within the day.

Indicator signals:

Trading is conducted below 30 and 50 moving averages, which indicates a continuation of the downward correction in the pair.

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

Crossing the lower border of the indicator in the area of 1.3630 will increase pressure on the pair. Crossing the upper border in the area of 1.3660 will lead to a new wave of growth of the pound.

Description of indicators