Yesterday there was only one signal to enter the market. Let's take a look at the 5-minute chart and figure out what happened. I paid attention to the 1.1260 level in my morning forecast and advised making decisions on entering the market there. The decline and false breakout in this range after the UK inflation report was released, which exceeded economists' forecasts by recording another jump, led to an excellent buy signal, however, after moving up by 35 points, the pound was under pressure again, and we quickly rolled back to 1.1260. The bulls managed to defend this level on the second attempt, but the growth also took place by about 30 points, after which, on the fourth time, this area was surpassed. Despite the revision of the technical picture for the US session, it was not possible to wait for adequate signals to enter the market.
When to go long on GBP/USD:
After inflation in the UK rose above 10.0%, the Bank of England definitely had no doubts about the correctness of the decision to launch QT, albeit with some restrictions in the form of keeping long-term bonds on its balance sheet. It also cannot be ruled out that at its next meeting the central bank will raise interest rates more aggressively than the market currently expects - this is bad news for the British pound and for the UK government, which is trying with all its might to save the economy from sliding into recession. We will not receive any report today, so the pound has every chance to continue the downward correction, which is about to flow into a new trend.
Therefore, it is so important for the bulls to prove their presence in the area of 1.1192, without which everything will definitely go "out of hand". If the pair goes down, forming a false breakout at the level of 1.1192 will give a signal to buy with the goal of returning to 1.1259 – an important resistance formed on the basis of yesterday. A breakthrough and a downward test of this range can radically change the situation, making it possible for bulls to fully compensate for all yesterday's losses, pulling stop orders from speculators. This forms a new buy signal with growth towards the more important level at 1.1324. The bulls' farthest target will be a high of 1.1403. If the bulls do not cope with their tasks and miss 1.1192, the pressure on the pair will quickly return. In this case, I advise you to buy only on a false breakout in the area of 1.1133. I recommend opening long positions on GBP/USD immediately for a rebound from 1.1076, or even lower - around 1.1019 with the goal of correcting 30-35 points within the day.
When to go short on GBP/USD:
Bears confidently declared themselves, cooling the ardor of speculative buyers. Yesterday's reaction to the inflation report was negative and today there are no new reasons to buy the British pound. In such a scenario, the best time to sell the pound would be a false breakout in the resistance area of 1.1259, where the moving averages are, playing on the bears' side. This will allow us to get a good entry point with the goal of moving to the nearest support at 1.1192, on which quite a lot now depends. A breakthrough and test from the bottom up of this range would be a good setup with an exit to the 1.1133 low. The farthest target will be the area of 1.1076, where I recommend taking profits.
In case GBP/USD grows and the bears are not active at 1.1259, the bulls will continue to return to the market, counting on offsetting the situation, thus locking the pair in the horizontal channel. This will push the GBP/USD to the 1.1324 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 1.1403, counting on the pair's rebound down by 30-35 points within the day.
COT report:
The Commitment of Traders (COT) report for October 11 logged a sharp reduction in short positions and an increase in long positions. The Bank of England's intervention has affected many traders who are now betting on the strengthening of the pound in the medium term. More recently, it was reported that the central bank has decided to temporarily suspend its quantitative tightening program, better known as QT, to help the bond market recover a bit after a sharp collapse caused by the actions of British Prime Minister Liz Truss. However, one should not count on a sharp rise in the pound in the medium term, as there is an economic recession and an aggressive policy on the part of the Federal Reserve, which will make the US dollar more attractive. The latest COT report indicated that long non-commercial positions rose by 6,901 to 48,979, while short non-commercial positions decreased by 3,468 to 88,149, resulting in a slight reduction in the negative non-commercial net position to -39,170 versus -49,539. The weekly closing price dropped to 1.1036 versus 1.1494.
Signals of indicators:
Trading is below the 30 and 50-day moving averages, which indicates an attempt by the bears to take over the market.
Moving averages
Note: The period and prices of moving averages are considered by the author on the H1 chart, which differs from the general definition of the classic daily moving averages on the daily chart.
Bollinger Bands
In case of a decline, the lower border of the indicator around 1.1190 will act as support.
Description of indicators
Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart.MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9Bollinger Bands (Bollinger Bands). Period 20 Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.Long non-commercial positions represent the total long open position of non-commercial traders.Short non-commercial positions represent the total short open position of non-commercial traders.Total non-commercial net position is the difference between short and long positions of non-commercial traders.