GBP/USD: plan for the European session on October 6. COT reports. The pound fell by 250 points, but then compensated for part of the positions

Yesterday, several signals were formed for the pound to enter the market. Let's take a look at the 5-minute chart and see what happened. I paid attention to levels 1.1483 and 1.1419 in my morning forecast and advised making decisions on entering the market there. After a slight rise in the morning, the bulls failed to offer anything above 1.1483, and the resulting false breakout provided an excellent sell signal with the pair moving down by 70 points. A breakthrough and reverse test of 1.1419 formed another entry point for short positions, resulting in a 60-point decline. In the afternoon, the bulls tried to cling to 1.1360, giving a false breakout entry point into long positions, which led to losses. Only long positions on the rebound from 1.1227 made it possible for us to enter the market perfectly and achieve an upward correction by 70 points.

When to go long on GBP/USD:

Speculative bulls were shaken well yesterday, but this was just an excuse to build up long positions on the pound. However, the signal that the pound can be sold very easily at any moment is very important in the current thin market, where daily volatility exceeds 200 points. The PMI index for the construction sector in the UK will be released today, which may remain strong - especially after yesterday's data on activity in the services sector was better than economists' forecasts. The speech of the Bank of England MPC member Jonathan Haskell may also affect the pair's direction, touching on the policies of the future monetary policy, or ways of supporting the bond market by the BoE. In case the pair falls, the bulls should show themselves in the intermediate support area of 1.1334. The optimal scenario for opening longs will be a false breakout at this level, which will provide a buy signal with the goal of returning to the high of 1.1381, where the moving averages are on the bears' side. A breakthrough and test from top to bottom of this range amid good statistics may pull the next stop orders of speculators, which creates a new buy signal with an increase to a more distant level of 1.1430. The farthest target of the bulls will be this month's high of 1.1488, where I recommend taking profits.

If the bulls fail to meet their targets and miss 1.1334, pressure on the pair could quickly return, opening up the prospect of a fresh low at 1.1284. I advise you to buy there only on a false breakout. I recommend opening long positions on GBP/USD immediately for a rebound from 1.1227, or even lower - around 1.1163, counting on correcting 30-35 points within the day.

When to go short on GBP/USD:

The bears did quite a lot yesterday, but then they very quickly lost their advantage, which they should regain today - if they plan to take control of the market, of course. The optimal sell scenario would be a false breakout from the resistance at 1.1381, formed following the results of the Asian session, where the moving averages play on the bears' side. They should not miss it, as this will lead to another wave of GBP/USD strengthening and replay the market picture in favor of the bulls. But in order for the bears to really declare themselves, weak fundamental statistics on the UK and a return under control of support 1.1334 are necessary. A breakthrough and reverse test from the bottom up of this range will provide a good entry point with the goal of a new major sell-off to the 1.1284 area, and there it is within easy reach to 1.1227. The farthest target will be at least 1.1163, where I recommend taking profits. However, movement there will occur only in the event of another absurd initiative from the British government, or similar statements by representatives of the BoE.

In case GBP/USD grows and the bears are not active at 1.1381, the correction may continue, which will return the pair to the high of 1.1430. Only a false breakout at this level will provide an entry point into short positions with a new downward movement as the goal. If traders are not active there, I advise you to sell GBP/USD immediately for a rebound from 1.1488, counting on the pair's rebound down by 30-35 points within the day.

COT report:

The Commitment of Traders (COT) report for September 27 logged a sharp increase in both long and short positions. The fact that the pound lost about 10.0% in two days, after which the BoE was simply forced to intervene in the situation, is directly related to the return of demand and the growth of long positions, which exceeded the growth of short ones. After the Bank of England raised interest rates by only 0.5%, the pound fell to historical lows against the US dollar and many started talking about how close it is to parity. However, the central bank's intervention in the bond market helped to stabilize the situation in the foreign exchange market, which allowed the bulls to compensate for a significant part of their positions. However, it remains a mystery as to how long such support from the BoE will last to keep the British pound afloat during further interest rate hikes. This week, data on activity in the UK is expected, which can significantly harm the pound and limit its further growth potential. The latest COT report indicated that long non-commercial positions rose 18,831 to 59,831, while short non-commercial positions jumped 10,123 to 106,255, resulting in another slight reduction in the negative non-commercial net position to - 46,424 versus -54,843. The weekly closing price collapsed to 1.0738 versus 1.1392.

Indicator signals:

Trading is below the 30 and 50-day moving averages, which indicates the bears' attempt to take over the 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 of growth, the average border of the indicator around 1.1381 will act as resistance.

Description of indicators