For long positions on GBP/USD:
Yesterday, there was a large number of entry signals. Let us take a look at the 5-minute chart and see what happened there. In my morning forecast, I recommended entering the market at the levels of 1.3195 and 1.315. It did not take long for the pair to make a breakout. Unfortunately, the pair did not retest the level from bottom to top which was why I missed the moment to go short when the price declined towards 1.3157. After testing a new low, the pair formed a false breakout which served as a buy signal. After that, it rebounded upwards by 20 pips. However, a full-fledged upside correction never started. In the afternoon, bears pushed the price below the level of 1.3157. A retest of this line gave a signal to sell the pound following the trend. Unfortunately, the downtrend was not developed immediately which resulted in losses. After a rise to 1.3203 and a failed consolidation above it, there was a new good signal to sell the pound. As a result, the pair dropped by more than 90 pips. Buying activity after a false breakout at the low of 1.3111 led to a correction of 20 pips.
The pound is trading at new local lows, and there are no signs of anyone willing to buy it. Despite this, the current price seems quite attractive to traders, especially ahead of a rate hike by the Bank of England. Notably, inflation in the UK is now one of the biggest challenges for the government. Higher interest rates will increase the demand for the pound. As a result of yesterday's talks between Russia and Ukraine, decisions were made to provide humanitarian corridors to allow people to leave Ukrainian cities safely. Whether these agreements will be fulfilled is a big question. Today, no key events are observed in the economic calendar in the UK, so I recommend focusing on the technical picture. In the European session, bulls will have to protect the support level of 1.3070, a new yearly low. Traders can open long positions from this level only after the formation of a false breakout, since the market entry will be opposite of the bear trend. In this scenario, the pound will recover back to the resistance of 1.3128 which plays a very important role. Only a breakout and retest of this area from top to bottom will trigger some of the sellers' stop orders. This will allow bulls to win back losses at a faster pace. The target in this case will be the area of 1.3160, where the moving averages are located, supporting the bearish trend. A more difficult task for bulls will be to retest the resistance area at 1.3195 which will allow them to recoup yesterday's losses. I recommend taking profit there. In case GBP/USD declines during the European session and buyers' activity decreases near 1.3070, it is better to wait until the price reaches the next support level at 1.3034. Long positions should be opened only when a false breakout is formed. You can buy GBP/USD immediately on a rebound from 1.2976, or even lower at 1.2914, keeping in mind a correction of 20-25 pips within a day.
For short positions on GBP/USD:
At the moment, bears are in control of the market, and there are little opportunities left to open new buy positions. Yesterday's attempts by the bulls to regain strength were confronted with a wave of sales, which is another evidence of strong bearish presence. Sell-offs may continue today due to the deterioration of the geopolitical situation in Ukraine. The priority target for today will be the support level of 1.3070. Yet, bears will also need to defend the important level of 1.3128. Only a false breakout at 1.3128 will create the first sell signal with a prospect to test the new low of 1.3070. A break and a retest of this range will increase pressure on the pair. This will facilitate the continuation of the bearish trend and provide another entry point for short positions with the target towards the low of 1.3034. If the news background worsens, the pair may head for 1.2976 and 1.2914, where I recommend taking profit. In case GBP/USD grows in the European session and sellers' activity decreases at 1.3128, it is better to wait with selling the pair until the price hits the key level of 1.3160. This is where the moving averages support the bear market. Short positions should be opened only in case of a false breakout. You can sell GBP/USD immediately on a rebound from 1.3195, or even higher at 1.3245, considering a correction of 20-25 pips within a day.
COT report
COT reports (Commitment of Traders) for February 22 recorded a sharp increase in short positions and a reduction in long ones. This resulted in delta returning to its negative value. Thus, the market maintains the balance even in the face of hostilities. Amid a tough geopolitical conflict that has affected almost the entire world, it is not surprising that short positions on risk assets are steadily increasing. This report has revealed the results of the sell-off that took place at the end of last week, so it is too early to talk about actual numbers. Besides, the policy of the Bank of England or the US Federal Reserve will be of minor importance now if the military conflict escalates further. Russia and Ukraine are conducting peace talks and much will depend on the results of these negotiations. In the current situation, the COT is losing its relevance for traders. You should be careful when trading risk assets and buy the pound only when tensions between Russia, Ukraine, the EU, and the US ease. Any new sanctions against Russia will have serious economic consequences, which will affect the entire financial market. The COT report for February 22 indicates that long positions of the non-commercial group of traders decreased from 50,151 to 42,249, while short positions rose from 47,914 to 48,058. This resulted in the net position turning negative from 2,247 to -5,809. The weekly closing price rose to 1.3592 against 1.3532 in the previous week.
Indicator signals:
Moving Averages:
Trading below the 30- and 50-day moving averages indicates a further bearish trend on the pair.
Please note the time period and prices of moving averages are analyzed only for the H1 chart which differs from the general definition of the classic daily moving averages on the D1 chart.
Bollinger Bands:
In case of a decline, the lower boundary of the indicator at 1.3070 will act as support. If the pair rises, the upper boundary at 1.3160 will serve as resistance.
Description of indicators:
• A moving average determines the current trend by smoothing volatility and noise. 50-day period; marked in yellow on the chart;
• A moving average determines the current trend by smoothing volatility and noise. 30-day period; marked in green on the chart;
• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA, 12-day period; Slow EMA, 26-day period. SMA with a 9-day period;
• Bollinger Bands: 20-day period;
• Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements;
• Long non-commercial positions represent the total number of long position opened by non-commercial traders;
• Short non-commercial positions represent the total number of short position opened by non-commercial traders;
• The total non-commercial net position is the difference between short and long positions of non-commercial traders.