Yesterday there were several signals to enter the market. Let's take a look at the 5-minute chart to clear up the situation. Earlier, I highlighted the 1.2311 level. A decline and false breakout gave a good sell signal, but the pair only rose around 30 pips. During the US session, there was exactly the same signal, however you shouldn't have entered the market since there was no place to put a stop-loss order.
When to go long on GBP/USD:
Today I expect a bigger spike in market volatility after the release of the UK retail sales report for December. Showing a decline may negatively affect the pound's positions, while a more active growth will support the pair, which will lead to an update of the monthly highs. The report on the Core Retail Sales Index is unlikely to upset the market equilibrium. So, in case the pound falls, a false breakout around the new support at 1.2338, where the moving averages are benefiting the bulls, can establish a stronger uptrend and give the GBP a chance to return to 1.2431, a monthly high. In case it settles in this range if we receive good news that the strikes in Britain are over, there is a chance that the bullish rally will continue with the 1.2499 update. If this range is broken with a top-down test it would open up the prospect of reaching 1.2553, where I would lock in profits. If the bulls are unable to complete the tasks at hand and miss 1.2338, I anticipate the emergence of a stronger downward correction. For this reason I advise not to rush to buy: I will only open long positions on 1.2257 if there is a decline and a false breakout. I'll think about purchasing GBP/USD after a rebound from 1.2194, expecting a correction of 30-35 pips intraday.
When to go short on GBP/USD:
Bears are not very active so far, leaving everything to chance: political changes, fundamental data and the UK prime minister's statements on future payrolls could all lead to a sharp decline this morning. The main task is to regain control of 1.2338, but don't forget about defending the monthly high. In case the pound rallies due to the report, a false breakout at 1.2431 will give a sell signal with the potential to return to 1.2338, where the moving averages are benefiting the bulls. A breakout and a reversal test will put more pressure on the pound and provide an entry opportunity to sell towards 1.2257. At a distance, an area of 1.2194 will be the goal, where I will lock in the profit. If GBP/USD grows and bears fail to protect 1.2431, a new bullish trend will continue to form. In this instance, the only entry point into short positions with an eye toward a new downward movement is a false breakout near the high at 1.2499. If there isn't any activity there, I'll sell GBP/USD right away at its highest price of 1.2553, but only if I believe the pair will decline another 30-35 points during the day.
COT report
According to the COT report from January 10, the number of short positions jumped, whereas the number of long positions slumped. Notably, the report does not cover the US inflation figures published on Thursday. The data had a considerable influence on the market situation. That is why now, the situation is different. A decline in the US price growth recorded in December boosted demand for risk assets, including the British pound. Strong data on the UK labor market will allow the pound sterling to consolidate on the current highs and form a new uptrend. Traders should also pay attention to the comments that will be provided by the BoE's and the Fed's officials. The recent COT report unveiled that the number of short non-commercial positions increased by 1,537 to 65,463, while the number of long non-commercial positions dropped by 7,618 to 36,007, which led to a rise in the negative value of the non-commercial net position to -29,456 against -20,301 a week earlier. Notably, the negative value of the non-commercial net position has been rising for the third day in a row. This points to the fact that big traders do not expect an increase in the pound sterling and try to sell the asset. Be attentive when buying the asset at the current highs. The weekly closing price rose to 1.2182 from 1.2004.
Indicator signals:
Moving averages
The fact that trading is taking place above the 30- and 50-day moving averages shows that the market is optimistic.
Note: The author considers the period and prices of moving averages on the one-hour chart which differs from the general definition of the classic daily moving averages on the daily chart.
Bollinger Bands
Resistance is seen at 1.2400, in line with the upper band. Support stands at 1.2330, in line with the lower band.
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.