In my morning forecast I pointed out the level of 1.2125 and recommended making market entry decisions with this level in mind. Let us look at the 5-minute chart and see what happened. The upward movement and the formation of a false-breakout at this level created a sell signal in the first half of the day, which pushed the pound down by more than 40 pips. Nevertheless, both the technical situation and the strategy itself have not changed.
When to open long positions on GBP/USD:
The low trading volume will persist today after yesterday's Thanksgiving Day holiday, which will lead to limited volatility similar to what happened in the first half of the day. Therefore, I will not plan to buy on the highs and prefer to act more objectively during downside movements. A false breakout of the new support level of 1.2066 will be a good entry point to go long on the pair, assuming GBP/USD will reach the new high at 1.2125, which the pair already bounced off once today. Bears can retreat for that reason. A breakout and a downward test of this range will create a buy signal. GBP/USD may surge towards 1.2179 afterwards. The most distant target will be the high of 1.2224, where I recommend taking profit. If bulls fail in the second half of the day and lose 1.2066, there will be more profit taking at the end of the week. In that case, I would advise buying only near the support at 1.2021. Near this level, the moving averages are located, which are favorable to bulls. You can buy GBP/USD immediately if it bounces from 1.0964 or even 1.1902, keeping in mind an upward intraday correction of 30-35 pips.
When to open short positions on GBP/USD:
Bullish traders tried to do something at the very beginning of the European session, but it was not enough. The main goal for bears during the American session is to protect the nearest resistance at 1.2125, which they did very well this morning. Another false breakout of that level will create a sell signal. From there, the pair will have good chances to go to 1.2066, the level it formed yesterday. A break-up and a downward retest of 1.2066 will ruin the plans of bullish traders, putting pressure on them at the end of the week and creating a sell signal with the target of 1.2021, where the bears will face some problems. The most distant target is the area of 1.1964, where I recommend taking profit. If the pair does not go down from 1.2125, the bulls will start buying once again, which will push the pound sterling to 1.2179. Only a false breakout of this level will create an entry point for opening short positions with a downside target. However, if bears also show no activity there, you can sell GBP/USD immediately at a bounce from 1.1224, keeping in mind a downward intraday correction of 30-35 pips.
COT report:
The Commitment of Traders (COT) report for November 15 recorded a decline of both short and long positions. A sharp rise in inflation in the UK was quite unexpected, which definitely affected the Bank of England and its future plans regarding interest rates. Given the situation, the regulator will simply be forced to further pursue an ultra-aggressive policy, which will keep the demand for the pound and allow it to strengthen against the U.S. dollar. But these problems in the UK economy, which were confirmed by the recent GDP data, are unlikely to lure the big market players, who seriously believe that a long-term recovery of the pound sterling is on the way. Don't forget that the Federal Reserve also continues its monetary tightening policy to fight inflation, which also discourages going long on GBP/USD in the medium term. The latest COT report showed that long non-commercial positions declined by 1,931 to 34,699, while short not-commercial positions decreased by 8,832 to 67,533, pushing the negative non-commercial net position further down to -32,834 from -39,735 a week earlier. The weekly closing price rose to 1.1885 versus 1.1549.
Indicators' signals:
Moving averages
Trading is carried out near the 30-day and 50-day moving averages, which indicates that the pound sterling is flat.
Note: The period and prices of moving averages are considered by the author on the H1 (1-hour) chart and differ from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
If GBP/USD moves down, the indicator's lower border at 1.2100 will serve as support.
Description of indicators
• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked yellow on the chart.
• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked 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 9
• Bollinger 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 the short and long positions of non-commercial traders.