GBP/USD: plan for the European session on October 13. COT reports. The pound recovered slightly, but the outlook is bleak

Several market entry signals were formed yesterday. Let's take a look at the 5-minute chart and figure out what happened. I paid attention to several levels in my morning forecast, but I managed to get a good entry point only around 1.1063. I did not wait for the pound to fall to the area of 1.0935, just as I did not wait for adequate signals to enter the market in the area of 1.1002. After moving up to 1.1063, a false breakout was formed, which led to a sell signal and the pound's movement down by 40 points. However, in those conditions it was difficult to place an adequate stop order, therefore, those who ignored the entry point from 1.1063 did the right thing. In the afternoon, protecting the 1.1091 resistance led to another entry point into short positions: as a result, the pound fell more than 30 points and that was it.

Data on UK GDP and industrial production made a depressing impression on traders and the pound fell in the first half of the day, but everyone was focused on whether the Bank of England will extend the program of buying bonds, or not. A day earlier, BoE Governor Andrew Bailey announced that the program would be fully completed on Friday, but so far the markets are optimistic that it will still be extended. There is nothing important this morning, so all the attention would be on the second half of the day and on the US inflation data, which we will talk about later. Reports on lending conditions in the UK and a speech by BoE MPC member Katherine L. Mann will go unnoticed by traders. Against the backdrop of everything expected, I bet on a further fall in the pound. In case the pair goes down, forming a false breakout at the level of 1.1031 will provide a signal to buy with the goal of returning to 1.1110 - the resistance formed by the end of yesterday, above which it was not possible to get out even in today's Asian session. A breakthrough and a downward test of this range may pull speculators' stop-orders along with it, which creates a new buy signal with an increase to a more distant level of 1.1180. But let me remind you that within the framework of the expected events, the pair's upward potential can be seriously limited. The farthest target will be a high of 1.1250, which will lead to a break in the bear market.

If the bulls fail to cope with their tasks and miss 1.1031, where the moving averages play on their side, the pressure on the pair will quickly return, which will open the prospect of updating the weekly low of 1.0955. I advise you to buy there only on a false breakout. I recommend opening long positions on GBP/USD immediately for a rebound from 1.0876 and 1.0800, or even lower - around 1.0738 with the goal of correcting 30-35 points within the day.

The bears manage to poorly control the market, especially amid the uncertainty of the BoE and the accusations from the UK Treasury, pouring in its address. If the bond purchase program ends on October 14, then the pressure on the pound will return very quickly, although the central bank probably has some kind of "trump card" up its "sleeve" and it will not let the market fall just like that. In the meantime, the entire calculation is on the US inflation data, which will "rule the ball". The best scenario for selling in the current conditions would be a false breakout in the resistance area of 1.1110, which was formed at the end of the Asian session. The target in this case will be the nearest support at 1.1031. A breakthrough and reverse test from the bottom up of this range will provide a good entry point with a new low at the 1.0955 and 1.0876 area. The farthest target will be the area of 1.0800, where I recommend taking profits.

In case GBP/USD grows and the bears are not active at 1.1110, bulls will begin to return to the market, counting on offsetting the situation. This should push the pair to the 1.1180 area. Only a false breakout at this level will provide an entry point into short positions with the goal of a new decline. If traders are not active there, I advise you to sell GBP/USD immediately for a rebound from 1.1250, counting on the pair's rebound down by 30-35 points within the day.

The Commitment of Traders (COT) report for October 4 logged a sharp decline in both long and short positions. The report has already recorded the fact that the pound fell by more than 10% in two days, and then its sharp recovery amid the Bank of England's intervention. Now, when the situation has stabilized a bit, it is clear that those who want to buy and sell the pound have significantly decreased. Given that the prospects for the British economy are deteriorating sharply and it is far from clear how the government is going to continue to deal with the cost-of-living crisis and high inflation - let me remind you that the last tax reduction plan failed; it is unlikely to expect further recovery of the pound. Activity in the UK private sector and in the service sector continues to decline, which also does not add confidence to investors. Much will depend on the Federal Reserve's policy, which is directly related to the US inflation report expected this week. For this reason, I do not bet on further growth of the pound in the current conditions and prefer the US dollar. The latest COT report indicates that long non-commercial positions decreased by 17,753, to the level of 42,078, while short non-commercial positions decreased by 14,638, to the level of 91,617, which led to a slight reduction in the negative value of the non-commercial net position to -49,539, against -46,424. The weekly closing price recovered and it was 1.1494 against 1.0738.

Trading is taking place just above the 30 and 50-day moving averages, indicating continued market uncertainty.

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 1.1110 will act as resistance. In case of a decline, the area of 1.1031 will act as support.