GBP/USD: plan for the European session on February 25. COT reports. Pound collapsed by 260 points, but major players are actively buying it off

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

Yesterday, quite a lot of signals were formed to enter the market. Let's take a look at the 5-minute schedule and figure out where it was possible and necessary to enter. In my morning forecast, I paid attention to several levels, and advised you to make decisions on entering the market. Unfortunately, it was not possible to achieve clarity on how to act at the 1.3477 level in the first half of the day, since on the one hand, after the breakthrough, the reverse test of 1.3477 resulted in a breakthrough and moving past this range means that accordingly, there is no sell signal. On the other hand, the bears regained control over this level, which only strengthened the bulls' position on the US dollar and led to a sell-off of the pound at 1.3446. The technical picture has been completely revised for the second half of the day: a breakthrough and a reverse test from the bottom up of 1.3436 resulted in forming a sell signal, which pushed the pound to a new low of 1.3384, allowing it to withdraw more than 50 points from the market. There, the bulls tried to offer something and even formed a false breakout with a buy signal. The growth was about 30 points, after which the pressure on the pair returned. A breakthrough and bottom-up test of 1.3384 is a sell signal. A breakthrough and a bottom-up test of 1.3359 is a sell signal with the pound falling to 1.3270.

The very strong volatility of GBP/USD is directly related to Russia's military actions on the territory of Ukraine. The conflict continues to worsen and, as expected, in the near future, Russian troops may even seize the capital of Ukraine, Kiev. It is unlikely that the Kiev authorities will make concessions and fulfill the demands of Russian President Vladimir Putin. The escalation of the conflict has long passed into the armed stage, which greatly affects risky assets, and will continue to affect them until the acute military phase ends and the parties sit down at the negotiating table.

Despite the sharp fall in the pound, major players are taking advantage of the moment and gaining long positions in the expectation that sooner or later the armed conflict will end and it will be possible to return to the topic of the Bank of England raising interest rates and curtailing measures to support the economy. But today I recommend that you continue to monitor geopolitical events and not really count on a positive market reaction. It is also not necessary to talk about any fundamental background today, and most likely the speech of the member of the ILC of the Bank of England Huw Pill will pass unnoticed for the foreign exchange market. It is important to protect the support of 1.3362 during the European session, by which the pound will surely collapse with negative news and another Russian aggression against Ukraine. You can consider long positions from 1.3362 after forming a false breakout there, which will lead to a wave of growth in the resistance area of 1.3417, formed by yesterday's results. The bulls will pay a lot of attention to this level, as going beyond this range can strengthen the upward correction of the pair. A breakthrough and a test of 1.3417 from top to bottom already forms another buy signal with the pair recovering to 1.3467, where the moving averages are playing on the bears' side. The 1.3510 area is a more distant target, where I recommend taking profits. In case GBP/USD falls during the European session and the bulls are not active at 1.3362, it is best not to rush with long positions. The nearest support in this case will be the 1.3316 area. Forming a false breakout there will provide an entry point to long positions. You can buy GBP/USD immediately on a rebound from 1.3267, or even lower - from a low of 1.3232, counting on a correction of 20-25 points within the day.

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

Bears are still in full control of the market, but as I noted above, bulls are taking advantage of the moment and are actively returning, getting attractive prices. For today, the nearest target will be the support of 1.3362, but it would also be nice to think about how to defend the resistance of 1.3417. A breakthrough and a reverse test of 1.3362 will increase the pressure on the pair, which will provide the first entry point into short positions with the goal of another decline to the lows: 1.3316 and 1.3276. A more distant goal will be this month's new low at 1.3232, where I recommend taking profits. In case GBP/USD grows during the European session, I advise you to take a closer look at short positions in the area of the intermediate resistance of 1.3417, formed by yesterday's results. Forming a false breakout at this level will provide a good entry point into short positions. In case bears are active at 1.3417, it is best to postpone short positions to a larger level of 1.3467, since it is not known how events around Ukraine will develop further. I also advise you to open short positions there in case of a false breakout. It is possible to sell GBP/USD immediately for a rebound from 1.3510, or even higher - from a high of 1.3542, counting on a correction of the pair down by 20-25 points within the day.

I recommend for review:

The Commitment of Traders (COT) reports for February 15 showed that long positions sharply increased while short ones decreased. This led to the return of the delta of its positive value. Although the results of the Bank of England meeting did not come as a surprise, clear hints from the central bank on a more aggressive tightening of monetary policy clearly fuels the appetite for risks on the part of major players. If it were not for the ongoing conflict between Russia and Ukraine, which has reached a new level, one could count on a more active recovery of the pound. In the meantime, further demand for risky assets is questionable. Given that the British economy is currently going through not the best of times and at any moment the pace of economic growth may seriously slow down - an increase in rates may harm the pace of recovery in the near future. However, optimism is inspired by the recent good report on retail sales, which implies a strong growth in the indicator. The fact that inflation in January remained at the same levels and practically did not change year-on-year - all this may affect the BoE's plans, which will moderate the pace of policy tightening. Further geopolitical events around Russia and Ukraine, as well as the decisive actions of the Federal Reserve regarding future interest rates in March of this year – all this will continue to put pressure on pound bulls. Some traders expect that the US central bank may resort to more aggressive actions and raise rates by 0.5% at once, rather than by 0.25% — this will become a kind of bullish signal for the US dollar. The COT report for February 15 indicated that long non-commercial positions increased from 44,709 to 50,151, while short non-commercial positions decreased from 53,254 to 47,914. This led to an increase in the non-commercial net position from -8,545 to 2,247. The weekly closing price remained unchanged at 1.3532 versus 1.3537.

Indicator signals:

Trading is conducted below the 30 and 50 moving averages, which indicates a bear market.

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

In case of growth, the upper limit of the indicator around 1.3450 will act as resistance. In case the pair falls, the lower limit of the indicator in the area of 1.3316 will act as support.

Description of indicators