Yesterday, the pair formed no entry signals. Let's have a look at the 5-minute chart and see what happened there. In my morning review, I mentioned the level of 1.2070 as a possible entry point. The pound made a rapid move toward this level but still failed to test it so I couldn't open new positions. In the second half of the day, the pair broke through 1.2070 but didn't retest it either, so I couldn't get an entry point into long positions. It wouldn't be wise to buy the pair after it settled above 1.2124 at the end of the day so I gave up on the idea.
For long positions on GBP/USD:
Today will be quite an eventful day that will start with the UK labor statistics. Markets will take notice of the claimant count change which may show a decline from the previous month. The UK unemployment rate is expected to stay at the same level. It will be more important to monitor the change in the UK average earnings. If this indicator slows down, the pound will depreciate and, on the contrary, it will strengthen if the indicator accelerates. If the pair declines, you should watch for buying opportunities after a false breakout at 1.2014, the level of support that was formed yesterday and below which the moving averages support the bulls. This will allow you to make sure that large market players have entered the market. If so, the pound may head for the 1.2186 area where an intensive trading activity may start. I will bet on the further uptrend in GBP/USD and its rise to the high of 1.2239 only if the price settles above 1.2186 and retests it from top to bottom amid a slowdown in US inflation. A break above this range will pave the way to the next upward target at 1.2284 where I'm planning to lock in profits. If bulls fail to open positions at 1.2014, GBP/USD will come under more pressure. In this case, I would advise you to go long only near the next support at 1.2033 and only in case of a false breakout. I will buy GBP/USD right after a rebound from the level of 1.1964, keeping in mind an intraday correction of 30-35 pips.
For short positions on GBP/USD:
Bears stayed quiet yesterday and will most likely do the same today, at least until the CPI report is published in the US. The UK employment data should not greatly affect the market sentiment and weigh on the pound even if it is negative. Today, bears should focus on the resistance area of 1.2186 rather than the level of 1.2114. A rise and a false breakout of 1.2186 may generate a sell signal and send the pair down to 1.2114. Its breakout and a retest will cancel the plans of the bulls to recover quickly after last-week's sell-off. If so, bears will increase their presence in the market and may form a sell signal with the target at 1.2033. The level of 1.1964 will serve as the lowest target and its retest will indicate the formation of a new downtrend. This is where I'm going to take profit. In case GBP/USD rises and bears are idle at 1.2186, bulls will take full control of the market. If so, only a false breakout at the next resistance of 1.2239 will form an entry point into short positions. If nothing happens there as well, I will sell GBP/USD from the high of 1.2284, considering a possible pullback of 30-35 pips within the day.
COT report:
Due to a technical failure of the CFTC that has been going on for more than two weeks, new COT reports continue to be delayed. The most recent data was published on January 24.
The Commitments of Traders report for January 24 recorded a sharp drop in both long and short positions. This decline was within acceptable values given the situation the UK government is currently dealing with. The UK authorities are facing strikes and demand for higher wages while trying to bring inflation lower. Still, our main focus should be on other things such as the Fed's meeting, which is expected to be less aggressive, and the meeting of the Bank of England. The latter is likely to maintain its hawkish stance and raise the rate by 0.5%. If so, the British pound will get strong support which is why I bet on its rise unless something unexpected happens. According to the latest COT report, short positions of the non-commercial group of traders decreased by 7,476 to 58,690 while long positions dropped by 6,713 to 34,756. As a result, the negative value of the non-commercial net position declined to -23,934 from -24,697 recorded a week ago. Such moderate changes do not change the market balance. So, we should continue monitoring the economic situation in the UK and the decisions of the BoE. The weekly closing price went up to 1.2350 from 1.2290.
Indicator signals:
Moving Averages
Trading above the 30- and 50-day moving averages indicates market uncertainty.
Please note that the time period and levels of the moving averages are analyzed only for the H1 chart, which differs from the general definition of the classic daily moving averages on the D1 chart.
Bollinger Bands
If the pair advances, the upper band of the indicator at 1.0845 will serve as resistance. In case of a decline, the lower band of the indicator at 1.0800 will act as support.
Description of indicators:
• A moving average of a 50-day period determines the current trend by smoothing volatility and noise; marked in yellow on the chart;
• A moving average of a 30-day period determines the current trend by smoothing volatility and noise; marked in green on the chart;
• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA with a 12-day period; Slow EMA with a 26-day period. SMA with a 9-day period;
• Bollinger Bands: 20-day period;
• Non-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 represent the total number of long positions opened by non-commercial traders;
• Short non-commercial positions represent the total number of short positions opened by non-commercial traders;
• The non-commercial net position is the difference between short and long positions of non-commercial traders.