On Friday, a few entry signals were made. Let's take a look at the M5 chart to get a picture of what happened. In my previous review, I focused on 1.1264 and considered entering the market at this level. A fall and a false breakout in this range produced a buy signal, and the pound grew by over 40 pips. The price failed to recover because of the high risks of another collapse in the UK financial market. A sell signal was made after a breakout and a bottom-top retest at 1.1264. Market jitters were triggered by news about the UK's budget. I incurred losses due to a sharp rise in volatility and the formation of a bullish candlestick. In the second half of the day, a few false signals were generated near 1.1182 support. The price grew by 100 pips and then gained about 70 pips.
When to go long on GBP/USD:
After realizing that Bank of England Governor Andrew Bailey would not agree to extend the bond purchase program, the UK government decided to abandon its plans to cut taxes, which was enough to calm down markets and keep them stable. In this light, the sterling was able to somewhat recover after increased activity on Friday following the release of data on US retail sales, which was no surprise to traders. No macro releases are scheduled for today in the UK. Therefore, the pound is likely to extend gains, making the uptrend that started on October 12 stronger. If the quote goes down, a buy signal will be generated after a false breakout through 1.1245, in line with bullish moving averages. In such a case, the target is seen at 1.1328 resistance, formed last week. A breakout and a test of this range from top to bottom may trigger a row of speculators' stop orders and create another buy signal at 1.1420. The most distant bullish target is seen at 1.1488. If the price hits this mark, the bear trend that emerged in early October will end. If bulls lose control over the 1.1245 mark, pressure on the pair will increase, and the market will trade within the limits of a sideways channel. Then, buy trades could be opened after a false breakout at 1.1166 only. Long positions could also be considered at 1.1098 or 1.1031 on a rebound, allowing a correction of 30-35 pips intraday.
When to go short on GBP/USD:
Sellers lost control over the market, following the UK government's decision. The pair is now heading towards 1.1328 resistance. A sell signal will be generated after a false breakout through the level. In such a case, the upper limit of the descending channel will be formed, and the nearest target will stand at 1.1245 support, which emerged by the close of Asian trade. A nice entry point will be produced after a breakout and a top-bottom retest of the range, with the target at the low of 1.1166, where bullish activity is likely to increase. The most distant target stands at around 1.1098, where it would be wiser to lock in profits. If GBP/USD is bullish and there is a lack of bearish activity at 1.1328, bulls will keep getting stronger, and the price may soar to the monthly highs. A false breakout at 1.1420 will create a sell entry point, and the downtrend will extend. If there is no activity at this level, GBP/USD could be sold at 1.1488 on a bounce, allowing a downward correction of 30-35 pips intraday.
Commitments of Traders
The COT report for October 4 logged a sharp decline in both long and short positions. The pound fell by more than 10% in two days and then recovered following the Bank of England's intervention. Although the situation has somewhat stabilized, the number of those willing to buy and sell the pound significantly decreased. The prospects for the British economy have deteriorated sharply. It remains to be seen how the government is going to deal with the cost-of-living crisis and high inflation. The latest tax reduction plan failed. The pound is unlikely to recover further. The UK's business activity in the private sector and in the service sector continues to decline, affecting investor confidence. A lot will depend on the Federal Reserve's policy, which is directly related to the US inflation report due this week. Therefore, it would be wiser to bet on the US dollar under current circumstances. According to the latest COT report, long non-commercial positions decreased by 17,753 to 42,078, short non-commercial positions decreased by 14,638 to 91,617, and the negative value of the non-commercial net position came in at -49,539 from -46,424. The weekly closing price was 1.1494 against 1.0738.
Indicator signals:
Moving averages
Trading is carried out in the range of the 30-day and 50-day moving averages, signaling market uncertainty.
Note: The period and prices of moving averages are viewed by the author on the hourly chart and differ from the general definition of classic daily moving averages on the daily chart.
Bollinger Bands
If the price goes down, the lower band at 1.1166 will be seen as support.
Indicator description:
Moving average (MA) determines the current trend by smoothing volatility and noise. Period 50. Colored yellow on the chart.Moving average (MA) determines the current trend by smoothing volatility and noise. Period 30. Colored green on the chart.Moving Average Convergence/Divergence (MACD). Fast EMA 12. Slow EMA 26. SMA 9.Bollinger Bands. Period 20Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.Long non-commercial positions are the total long position of non-commercial traders.Non-commercial short positions are the total short position of non-commercial traders.Total non-commercial net position is the difference between short and long positions of non-commercial traders.