Earlier, I asked you to pay attention to the level of 1.1690 to decide when to enter the market. Let us take a look at the 5-minute chart to figure out what happened. The pound sterling broke 1.1642 and failed to downwardly test it. After that, the currency continued rising to the next resistance level of 1.1690. A false breakout of this level led to a perfect sell signal. By the moment of writing the article, the pair had declined by more than 25 pips. The technical picture and trading strategies were revised for the second part of the day.
Conditions for opening long positions on GBP/USD:
Buyers of the pound sterling ignored statistical reports and continued opening long positions, expecting aggressive measures from the Bank of England. If the regulator raises the benchmark rate, the difference between the interest rates of the Fed and the BoE will narrow even more. In the second part of the day, there will be no macroeconomic reports that may influence the market. That is why the pound sterling may drop during the US trade. If it decreases, traders should pay attention to the support level of 1.1656. Traders may go long from this level only after a false breakout. If this prediction comes true, the pair may go on rising to return to the weekly high of 1.1694. If the price breaks this level and downwardly tests it, buyers will become more confident and may push the price to 1.1724. The next target is located at 1.1757, where it is recommended to lock in profits. If the pair declines and buyers fail to protect 1.1656, pressure on the pair will increase. Below 1.1656, there is only a level of 1.1619, where there are moving averages. There, traders may also go long after a false breakout. It is also possible to initiate buy orders just after a bounce off 1.1581 or even lower – from 1.1551, expecting a correction of 30-35 pips.
Conditions for opening short positions on GBP/USD:
Although bears failed to protect 1.1645, they showed good performance at 1.1645. Until the price hovers below this level, the pair will have every chance to decline. It will be better to go short after a false breakout of this level. In this case, the pair may slide to the nearest support level of 1.1656. A breakout and an upward test of 1.1656 will give a perfect sell signal with the target at 1.1619, where it is recommended to lock in profits. The next target is located at 1.1581, where there are buyers' moving averages. If the pound/dollar pair increases and bears fail to protect 1.1694, bulls will have a chance to push the price higher. Under these conditions, only a false breakout of the new high of 1.1724 will give a sell signal. It is also possible to sell after a rebound from 1.1757 or even higher – from 1.1793, expecting a decline of 30-35 pips within the day.
COT report
According to the COT report from August 30, the number of short positions increased, whereas the number of long positions dropped. This fact proves that the pound sterling is at the peak of the long downtrend. Pressure on the pair is likely to remain intact since the UK economic situation is becoming worse, whereas GDP is rapidly dropping. The election of the new prime minister will have only a transient positive effect. The fact is that the overall state of affairs is the same. Meanwhile, the US economy remains strong. The recent data on the labor market points to the fact that the Fed will remain stuck to its aggressive stance. This, in turn, will intensify pressure on the British pound, which has faced numerous problems recently. Traders cannot open more and more long positions amid the expectations of higher inflation and the growing living standards crisis. The fact is that the UK is likely to publish a bulk of sluggish macroeconomic reports, which will push the pound sterling below the current levels. The recent COT report unveiled that the number of long non-commercial positions dropped by 306 to 58,477, whereas the number of short non-commercial positions increased by 898 to 86,647, thus causing a slight increase in the negative value of the non-commercial net position to -29,170 against -27,966. The weekly closing price collapsed to 1.1661 from 1.1822.
Moving Averages
Trading is performed above 30- and 50-day moving averages, which points to the uptrend.
Note: The period and prices of moving averages are considered by the author on the one-hour chart, which differs from the general definition of the classic daily moving averages on the daily chart.
Bollinger Bands
If the pair decreases, the support level will be located at the middle line of the indicator near 1.1619.
Description of indicators
Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 50. It is marked in yellow on the chart. Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 30. It is marked in green on the graph. MACD indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). A fast EMA period is 12. A slow EMA period is 26. The SMA period is 9. Bollinger Bands. The period is 20. Non-profit speculative traders are individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements. Long non-commercial positions are the total number of long positions opened by non-commercial traders. Short non-commercial positions are the total number of short positions opened by non-commercial traders. The total non-commercial net position is a difference in the number of short and long positions opened by non-commercial traders.