Many excellent entry signals were generated yesterday. Let's take a look at the M5 chart to get a picture of what happened. In my previous review, I considered entering the market at around 1.1881. Bulls broke through the level in the European session but failed to consolidate. As a result, a sell signal was made. However, following a surge above 11% in UK inflation, the pound remained under strong buying pressure, as bulls expected the Bank of England to maintain an aggressive stance on interest rates at the next meeting. In this light, no significant correction occurred. In the North American session, selling pressure grew at around 1.1937. A false breakout produced a sell signal, which brought some 70 pips of profit. Meanwhile, buy trades after a false breakout through 1.1869 did not give the desired result.
When to go long on GBP/USD:
It seems that all the important macro releases in the UK have already come out. Nevertheless, the annual budget, which is due today, may shift the balance of trading forces in the market, especially if some yet unknown changes are in it. The forecast made by the UK Treasury as well as BoE MPC member Huw Pill's speech may exert pressure on the pound and trigger a correction in the European session today. In this light, it will become possible to go long after the sterling falls to the nearest support level of 1.1855 that was formed yesterday. A false breakout through it may generate a buy signal. The price may then recover to 1.1917 resistance. Yesterday, the quote failed to break through the barrier. Bulls are likely to gain control over the market after a breakout and downward test of this range amid a positive reaction to the budget and the speech of the BoE representative. The uptrend may extend to 1.1974 in case the price goes above 1.1917. The most distant target stands at 1.2021, where a profit-taking process may begin. If bulls lose control over 1.1855 in the European session, the pressure on the pair will mount and the profit-taking process will go on. Therefore, it would be wiser to open long positions after a false breakout through 1.1794 only. Long positions could also be considered at 1.1740 or 1.1677 on a rebound, allowing a correction of 30-35 pips intraday.
When to go short on GBP/USD:
Bears defended 1.1917 yesterday. Whether they stay there or not will to a great extent depend on the UK budget and reforms made by the Treasury that will become known in the first half of the day. Bears should maintain control over 1.1917 resistance today. If the pound goes above the barrier, the uptrend will extend. Meanwhile, if a false breakout through the level occurs, GBP/USD may fall to 1.1855, which is in line with the bullish moving averages. A breakout and a retest to the upside of this range will create an entry point, with the target at 1.1794, which will become a challenge for bulls who are counting on the continuation of the uptrend. The most distant target is seen at around 1.1740, where a profit-taking process may begin. The pound will lose all its growth potential if this range gets tested. If GBP/USD is bullish and there is a lack of bearish activity at 1.1917, bulls will keep getting stronger, and the price may soar to 1.1974. A false breakout there will create a sell entry point, and the price will go down. If there is no activity at 1.1974, GBP/USD could be sold at a monthly high of 1.2021 on a bounce, allowing a bearish correction of 30-35 pips intraday.
Commitments of Traders
The COT report for November 8 logged a decrease in short positions and an increase in long ones. The results of the Bank of England meeting influenced the balance of trading forces. Although the regulator no longer plans to pursue a super-aggressive policy, demand for the pound is still buoyant. The currency encountered support following the release of the lower-than-expected US inflation report. It remains to be seen how long this will help bulls to hold GBP at highs. The recent GDP data confirmed the fact that the UK economy is in dire stairs, which put pressure on the government. Meanwhile, the Bank of England slows down the economy even more with its rate hikes. In the near term, the labor market data will be released. If the figures come disappointing, the pound may tumble. According to the latest COT report, long non-commercial positions rose by 1,651 to 36,630 and short non-commercial positions decreased by 3,450 to 76,365, which led to a further decline in the negative non-commercial net position to -39,735 from -44,836 a week earlier. The weekly closing price of GBP/USD grew to 1.1549 against 1.1499 in the previous week.
Indicator signals:
Moving averages
Trading is carried out above the 30-day and 50-day moving averages, signaling a possible extension of the uptrend.
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 1.1855 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 the short and long positions of non-commercial traders.