GBP/USD: plan for the European session on September 21. COT reports. The pound returns to the annual low and is ready for its breakdown.

Quite a lot of market entry signals were formed yesterday, but not all of them brought the expected profit. Let's take a look at the 5-minute chart and see what happened. I paid attention to the 1.1441 level in my morning forecast and advised you to make decisions on entering the market from it. A false breakout in the area of 1.1441 led to what seemed to me an excellent signal to sell the pound, but it never came to a major downward movement. After a short period of time, the bulls broke above 1.1441 and tested this level from the top down, which led to the closure of short positions with a small loss, and to long positions on the pound. The upward movement amounted to about 15 points, and failing to break through the weekly high, bulls retreated. The bulls tried to protect 1.1411 in the afternoon and even drew a false breakout there. However, the upward movement amounted to about 13 points, after which there was a return and a breakthrough of 1.1411 with a reverse test from the bottom up - this forced us to exit longs and continue to sell the pound along the trend. The downward movement was about 50 points.

When to go long on GBP/USD:

Today we do not have any statistics that would help the pound to protect the annual lows. We expect data on the net volume of borrowings of the public sector in the UK and the balance of industrial orders according to the Confederation of British Industry. Most likely, the focus will shift to the US central bank's decision and to the statements made by Fed Chairman Jerome Powell. His hawkish accent will lead to another big sell-off in the British pound, which will open the door to fresh new yearly lows. In fairness, it should be said that the pressure on the pound can be limited, since tomorrow the Bank of England will follow a similar path and also raise rates by 0.75%. But even here it is difficult to say how good it is for the British pound, as the country's economy is actively heading into recession, and tightening policy will worsen the situation. The most convenient scenario for opening longs in the current difficult conditions will be a false breakout near the lower border of the horizontal channel at 1.1355, formed on the basis of last Friday. The goal of recovery in this case will be the resistance of 1.1405, where the moving averages are, playing on the bears' side. Only a breakthrough and test of this range can pull speculators' stop orders, which forms a new buy signal with a rise to a more distant level of 1.1451, allowing the bulls to keep trading in the horizontal channel. However, I don't really count on such a scenario, since the Fed's succeeding policy will obviously be quite aggressive. The farthest target will be the area of 1.1495, where I recommend taking profits.

If the GBP/USD falls and there are no bulls at 1.1355, and most likely it will be so, the pressure on the pair will return, which will open up the prospect of updating the September low. In this case, I advise you to postpone longs until the next support at 1.1313. I recommend opening longs on GBP/USD immediately for a rebound from 1.1264, or even lower - around 1.1205, counting on correcting 30-35 points within the day.

When to go short on GBP/USD:

The bears have already returned the pound to September lows and are preparing for its breakdown, taking advantage of the expectations of another aggressive interest rate hike by the US Federal Reserve. Obviously, in order to keep the market under their control, the bears need to protect the nearest resistance at 1.1405, which will lead to an excellent signal to open new shorts. In this case, the immediate target will be the area of 1.1355, near which, at the time of writing, the main trade is being conducted. I expect that this level will be of an intermediate nature, since the fourth test will take place. A breakthrough and reverse test of 1.1355 would provide a good entry point for shorts with a fall towards 1.1313. The farthest target will be a new yearly low of 1.1264.

In case GBP/USD grows and the bears are not active at 1.1405, the correction of the pound may lead to the area of 1.1451. Only a false breakout at this level will provide an entry point to shorts, counting on a slight movement of the pair to the downside. If traders are not active there, I advise you to sell GBP/USD immediately for a rebound from 1.1495, counting on the pair's rebound down by 30-35 points within the day.

COT report:

An increase in short positions and a decrease in long ones were recorded in the Commitment of Traders (COT) report for September 13. This once again confirms the fact that the British pound is in a major downward peak, from which it is not as easy to get out as it might seem. This week, in addition to the Federal Reserve meeting, there will also be a meeting of the Bank of England committee, at which a decision will be made to raise interest rates, which will negatively affect the economy, which is gradually sliding into recession, as evidenced by the latest macroeconomic statistics. A recent speech by BoE Governor Andrew Bailey confirms the committee's aggressive intentions. On the one hand, an increase in interest rates should support the pound, but on the other hand, in the face of a sharp slowdown in economic growth and a crisis in living standards in the UK, such measures force them to get rid of the British pound, relying on the US dollar as a safe-haven asset. High U.S. rates are also attracting investors, increasing demand for the U.S. dollar. The latest COT report indicated that long non-commercial positions decreased by 11,602 to 41,129, while short non-commercial positions rose by 6,052 to 109,215, which led to an increase in the negative value of the non-commercial net position to the level of - 68,086 versus -50,423. The weekly closing price collapsed from 1.1504 against 1.1526.

Indicator signals:

Trading is below the 30 and 50-day moving averages, indicating a continuation of the 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 the pair falls, the lower border of the indicator around 1.1355 will act as support. In case of growth, the upper border of the indicator around 1.1415 will act as resistance.

Description of indicators