GBP/USD trading plan on August 31, 2022. COT report and overview of yesterday's trades. GBP retests yearly low and stays below 1.17

It has been really difficult to trade the pound lately using my strategy. Yesterday, several entry signals were generated but not all of them were profitable. Let's analyze the 5-minute chart. In my morning review, I mentioned the level of 1.1722 as a good point for entering the market. A breakout and a downward retest of this level created a buy signal which resulted in a sharp upside movement of 30 pips. Unfortunately, the price failed to reach the nearest resistance of 1.1769, so I couldn't open short positions from there. The technical picture was different in the second half of the day. A decline and what seemed to be a consolidation below 1.1700 as well as its retest generated a sell signal that was not activated immediately. A surge of 20 pips above 1.1700 triggered my stop-loss orders, and the pound returned again below 1.1700 to continue its fall. No other entry points were formed yesterday.

For long positions on GBP/USD:

Obviously, the demand for the pound is much lower than for the euro. Every time there is important macroeconomic data from the US, the pound/dollar pair tests yearly lows and shows no signs of completing the downtrend. Today, there are no fundamental reports in the UK that could support the pound. So, you should be very careful if you want to buy the pair. A false breakout at the nearest resistance of 1.1654 formed on Monday will generate the first signal for going long. Then, a correction towards 1.1716 is possible. A breakout and a downward test of this range will indicate the recovery of the pound and create a buy signal with a potential upside movement to 1.1754. The most distant target will be the area of 1.1793 where I recommend profit taking. In case of a further decline in GBP/USD, which is very likely, and the absence of buyers at 1.1654, the pair will come under pressure once again. Breaking below this range will lead to the test of another yearly low. If so, I recommend buying only after the price reaches the support area of 1.1591. Yet, trading at this level will be possible only on a false breakout. You can go long on GBP/USD right after a rebound from 1.1532 or even lower from 1.1484, bearing in mind a possible correction of 30-35 pips within the day.

For short positions on GBP/USD:

The sellers are doing great thanks to the upbeat data from the US. Unless the Bank of England changes its monetary policy, the pound is likely to depreciate further against USD. It is quite risky to sell on breakouts of yearly lows. It is safer to trade during an upside correction where a stop-loss order may be set close enough, given the further downside potential of the pound. The empty economic calendar in the UK will encourage bears to act, so bulls won't find any support today. The best scenario to sell the pound will be to wait for a false breakout at 1.1716. This will allow the price to quickly return to the support of 1.1654. A breakout and a retest of this range will form a sell entry point with the next target found at 1.1591. The level of 1.1532 will serve as a more distant target where I recommend profit taking. If GBP/USD rises and bears are idle at 1.1716, an upside correction may form, and buyers will get a chance to return to 1.1754. Its false breakout will create an entry point for going short, considering a further downside movement of the pair. If nothing happens there as well, I recommend selling GBP/USD right after the bounce from 1.179, bearing in mind a possible rebound of 30-35 pips within the day.

COT report

The Commitment of Traders report for August 23 showed an increase in both short and long positions. Although the latter prevailed slightly, this didn't change the overall situation. The pair is still under strong pressure. Moreover, Jerome Powell recently confirmed that the US regulator is determined to maintain its aggressive pace of monetary tightening, which put even more pressure on the pound/dollar pair. A high level of inflation and the rising cost of living in the UK stop traders from opening long positions, especially when another bunch of downbeat macroeconomic data may be revealed soon. This may push the pound below the current levels. This week, traders should pay attention to the US labor market. The Fed usually considers this data when determining its policy. If the labor market is stable and the unemployment rate is low, inflationary pressure may increase over time, thus forcing the Fed to raise rates further. This step will weigh on risk assets, including the British pound. According to the recent COT report, the number of long positions of the non-commercial group of traders went up by 14,699 to 58,783, while short positions increased by 9,556 to 86,749. As a result, the non-commercial net position rose to -27,966 against -33,109. The closing price of the week fell to 1.1822 from 1.2096.

Indicator signals:

Moving Averages:

Trading around the 30- and 50-day moving averages indicates that the market has reached some kind of balance after retesting yearly lows.

Please note that the time period and levels of the 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 band of the indicator at 1.1630 will act as support.

Description of indicators:

• A moving average of a 50-day period determines the current trend by smoothing volatility and noise; marked in yellow on the chart;

• A moving average of a 30-day period determines the current trend by smoothing volatility and noise; marked in green on the chart;

• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA with a 12-day period; Slow EMA with a 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 positions opened by non-commercial traders;

• Short non-commercial positions represent the total number of short positions opened by non-commercial traders;

• The total non-commercial net position is the difference between short and long positions of non-commercial traders.