GBP/USD: plan for the European session on February 1. COT reports. Pound bulls continue to look at the market and aim to cross 1.3469

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

Yesterday, a large number of signals were formed for the pound to enter the market. Let's look at the 5-minute chart and figure out the entry points. In my morning forecast, I paid attention to the 1.3430 level and recommended making decisions on entering the market from it. Given that the bears are gradually leaving the market before the Bank of England meeting, the bulls managed to cross 1.3430 in the first half of the day, and then protect this level - this led to a signal to buy the pound. In total, the pair went up about 20 points, but the bulls did not reach the target of 1.3466. In the afternoon, it was possible to observe a major sell-off of the pound, and the 1.3418 test from the bottom up gave an excellent entry point into short positions on the trend. Unfortunately, there was no major drop and the transaction resulted in losses. After returning to the level of 1.3418 and the reverse test from top to bottom, the bulls have already proved their presence in the market, which led to a buy signal. The growth was about 40 points.

Before analyzing the technical picture of the pound, let's look at what happened in the futures market. The Commitment of Traders (COT) report for January 25 showed that short positions increased and a sharp reduction in long ones. All this has led to a return of the market to the bears' side, but this week the situation may change dramatically. As the bears did not try to continue the downward trend, it turned out quite badly. The bears were not helped by the Federal Reserve's statements after the monetary policy meeting that the central bank would start raising interest rates in the United States in March. Most likely, the demand for the pound will gradually recover, as a meeting of the Bank of England committee will be held this Thursday, at which it will be decided to raise interest rates. However, the pressure on the pound will remain due to the observed fundamental picture, which creates a number of more serious moments limiting the upward potential. However, 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. In any case, the BoE's decision to raise interest rates further this year will push the pound to new highs. The COT report for January 25 indicated that long non-commercial positions decreased from the level of 39,760 to the level of 36,666, while short non-commercial positions increased from the level of 40,007 to the level of 44,429. This led to a drop in the negative non-commercial net position from -247 to -7,763. The weekly closing price dropped from the level of 1.3647 to the level of 1.3488.

Yesterday it was possible to observe an active confrontation between bulls and bears, and judging by what we see, the first ones won. Today, a rather interesting report on manufacturing activity in the UK is coming out, which may become a catalyst for growth for the pound in the short term.

The primary task is to protect the support of 1.3420, on which the moving averages that play on the bulls' side are held. This level was formed as a result of yesterday's confrontation and plays a very important role. In case the pair falls, forming a false breakout at 1.3420 will give a signal to buy GBP/USD against the downward trend observed since January 14. If such a scenario is implemented, the bulls will aim to surpass the resistance of 1.3469, which they failed to reach yesterday. 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 updating of the highs: 1.3519 and 1.3565. A more distant target will be the 1.3612 area, where I recommend taking profits.

In case the pound falls during the European session and a lack of activity at 1.3420, the bulls may have serious problems. Therefore, it is best to postpone long positions to the level of 1.3376 – the last hope for maintaining an upward correction for the pair. Forming a false breakout there will provide an entry point based on the pound's growth. You can buy GBP/USD immediately on a rebound from 1.3342, or even lower - from the 1.3301 low, 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 and the primary task is to protect the 1.3469 range – the last point of support for bears. A breakthrough of this range will negate the bear market.

Weak data on the PMI index for the UK manufacturing sector and the formation of a false breakout at 1.3469 - all this will give an entry point to short positions in order to resume the bearish trend and the subsequent decline of the pair to the area of 1.3420. You will have to fight hard for this level, as there are moving averages that play on the bulls' side. A breakthrough and a reverse test from the bottom up of 1.3420 will lead to the demolition of a number of bulls' stop orders, which will bring GBP/USD to last week's low of 1.3376. Only the consolidation and reverse test of this range will give a new entry point into short positions with the prospect of a decline in GBP/USD by 1.3342 and 1.3301, where I recommend taking profits.

If the pair grows during the European session and bears are weak at 1.3469, it is best to postpone short positions to a larger resistance of 1.3519. 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 the 1.3565 high, or even higher - from the area of 1.3612, counting on the pair's rebound down by 20-25 points within the day.

Indicator signals:

Trading is conducted above the 30 and 50 moving averages, which indicates an attempt by the bulls to build an upward correction for 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 limit of the indicator in the area of 1.3420 will increase the pressure on the pair. Crossing the upper limit in the area of 1.3470 will lead to a new wave of growth of the pound.

Description of indicators