Several market entry signals were formed yesterday. Let's take a look at the 5-minute chart and see what happened. I paid attention to the 1.1613 level in my morning forecast and advised making decisions on entering the market from it. Before forming a false breakout at 1.1613, just a couple of points were missing. I was unable to enter the market for this reason. A similar situation occurred with the level of 1.1545, where I expected the pair to reverse and more active growth. Unfortunately, even before the test of this range, about 3-4 points were not enough, so I did not manage to buy the pound. The pressure on the pair returned in the afternoon after strong ISM reports, which led to a test and a false breakout in the 1.1497 area, where I advised buying the pound. As a result, the upward rebound amounted to more than 50 points. The bears managed to protect the resistance at 1.1549 closer to the middle of the US session, which led to a signal to sell further along the trend. As a result, the pound fell another 30 points.
When to go long on GBP/USD:
Today is quite an important day for the British pound, as there will be parliamentary hearings on the report of the Bank of England on monetary policy, as well as a speech by Bank of England Governor Andrew Bailey. It is clear that the central bank will have to further increase the pace of interest rate hikes, which will further complicate the situation in an economy that is struggling with an energy crisis, which translates into a crisis in the cost of living for the British. This can only increase the pressure on the pound, leading to new annual lows. In case GBP/USD falls and a negative reaction to Bailey's statements, forming a false breakout at 1.1459 will give the first signal to open long positions in anticipation of a correction to the 1.1509 area. A breakthrough and a downward test of this range may pull stop orders from speculative bears, which forms a buy signal with an increase to a more distant level of 1.1559, just below which the moving averages play on the bears' side. The farthest target will be the area of 1.1607, which we failed to cling to yesterday. I recommend taking profit there.
If the GBP/USD falls further and there are no bulls at 1.1453, which is more likely, the pressure on the pair will increase. A breakthrough of this range will lead to the renewal of the next annual low. In this case, I advise you to postpone long positions until the next support at 1.1409 - a low of 2020, but you can act there only on a false breakout. I recommend opening long positions on GBP/USD immediately for a rebound from 1.1358, or even lower - around 1.1313, counting on correcting 30-35 points within the day.
When to go short on GBP/USD:
Having coped with a rather important task of protecting the 16th figure, bears continued to pull down the pound and achieved a return to annual lows. It is likely that Bailey's speech today will have a bad effect on the pound, as statements about raising interest rates during the economy sliding into recession will clearly discourage traders from buying the pound again. Of course, it is best to act based on an upward correction. The optimal scenario for opening short positions on GBP/USD would be forming a false breakout at the level of 1.1509, a breakthrough to which may occur during Bailey's speech. This will make it possible to achieve a new sell signal and a return to the area of 1.1453. Only a breakthrough and reverse test of this range would provide a new entry point for short positions with a fall towards the 2020 low at 1.1408. A more distant target will be the area of 1.1358, where I recommend taking profits.
In case GBP/USD grows and the bears are not active at 1.1509, there will be a chance for an upward correction, and bulls will have the opportunity to return to 1.1559, where the moving averages play on the bears' side. Only a false breakout there will provide an entry point into short positions, counting on a new fall in the pair. If there is no activity there, I advise you to sell GBP/USD immediately for a rebound from 1.1607, counting on the pair's rebound down by 30-35 points within the day.
COT report:
An increase in short positions was logged in the Commitment of Traders (COT) report for August 30, while long ones decreased. This once again confirms the fact that the British pound is in a major downward peak. Serious pressure on the pair will continue in the future, as the British economy is getting worse and worse, and GDP is shrinking quite quickly. The choice of a new prime minister of Great Britain will only provide temporary support to the pound, since, in fact, it does not change anything. In turn, the US economy continues to show strength, and recent data on the labor market once again convinced investors that the US central bank, led by Federal Reserve Chairman Jerome Powell, will continue to raise interest rates at an aggressive pace, which will only increase pressure on the British pound, which is experiencing quite a lot of problems lately. Expected high inflation and a looming cost-of-living crisis in the UK does not give traders room to take long positions, as a fairly large range of weak fundamentals is expected ahead, likely to push the pound even further below the levels at which it is currently trading. The latest COT report indicated that long non-commercial positions decreased by 306 to 58,477, while short non-commercial positions rose by 898 to 86,647, which led to a slight increase in the negative value of the non-commercial net position to -29,170 vs. -27,966. The weekly closing price collapsed from 1.1661 against 1.1822.
Indicator signals:
Trading is below the 30 and 50-day moving averages, which indicates further decline 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
In case the pair goes down, the lower border of the indicator around 1.1453 will act as support. In case of growth, the upper border of the indicator around 1.1559 will act as resistance.
Description of indicators
Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart.MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9Bollinger Bands (Bollinger Bands). Period 20 Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.Long non-commercial positions represent the total long open position of non-commercial traders.Short non-commercial positions represent the total short open position of non-commercial traders.Total non-commercial net position is the difference between short and long positions of non-commercial traders.