In my morning forecast, I highlighted the level of 1.2441 and recommended using it as a reference point for market entry decisions. Let's examine the 5-minute chart and analyze what happened there. The rise and the formation of a false breakout at 1.2451 resulted in a selling signal, leading to a significant drop in the pair by almost 40 points. In the second half of the day, the technical picture remained unchanged.
To open long positions on GBP/USD, the following conditions are required:
Buyers of the pound tried, but it didn't work out. The economic situation in the UK is very similar to what is observed in the eurozone, which does not add optimism about the future of the British pound, even if the Bank of England raises rates next week – the situation with the euro was a clear example of this yesterday. In addition, strong figures are expected today regarding changes in industrial production, an increase in US consumer sentiment from the University of Michigan, and rising inflation expectations. This will be a reason to sell the pound and revisit monthly lows. For this reason, I prefer to act only after a decline and the formation of a false breakout at 1.2395, where finding a good entry point for long positions to return to 1.2411 will be possible. Moving averages are located around this level, so bulls may encounter difficulties there. A breakthrough and consolidation above this range after weak US reports will strengthen buyers' confidence, providing a signal to open long positions with an exit at 1.2478, where larger sellers are expected. The ultimate target will be the area of 1.2509, where I will take profit. In the scenario of a drop to 1.2395 and the absence of buyer activity there in the second half of the day, the pressure on the pound will only increase, opening the way to new monthly lows. In this case, only the defense of 1.2369 and a false breakout there will signal the opening of long positions. I plan to buy GBP/USD immediately on a rebound only from the minimum of 1.2340 with the goal of a 30-35 point intraday correction.
To open short positions on GBP/USD, the following conditions are required:
In the event of an increase in the pair in the second half of the day, bears must defend the nearest resistance at 1.2411, following the analogy I discussed above. After an unsuccessful consolidation, I will only act at 1.2411, which will provide a selling signal with the prospect of a decline to 1.2395, which sellers have already almost reached. A breakthrough and a reverse test from below to above this range will deal a more serious blow to the bulls' positions, providing an opportunity for a drop to support at 1.2369. The ultimate target remains the area of 1.2340, where I will take profit. In the scenario of GBP/USD rising and the absence of activity at 1.2441, buyers will have an excellent opportunity for a correction at the end of the week. In this case, I will postpone selling until a false breakout at 1.2478. If there is no downward movement and a rebound, I will sell the pound immediately from 1.2509, but only counting on a pair's correction down by 30-35 points.
In the COT (Commitment of Traders) report for September 5, there was a reduction in both long and short positions. Statements by Bank of England Governor Andrew Bailey caused a lot of noise, leading to quite active pound selling last week. Hints at a likely abandonment of further aggressive regulator policy in favor of maintaining economic growth did not sit well with buyers, as it is clear that the Federal Reserve in the US, which has made much more progress in combating inflation, is not planning to do the same. The difference in interest rates makes the dollar more attractive and puts pressure on the pound. However, buyers may take advantage of significant GBP/USD selling at any time, as the lower the pound, the more attractive it is for medium-term purchases. The latest COT report noted that long non-commercial positions decreased by 4,498 to 92,645, while short non-commercial positions decreased by 2,481 to 46,261. As a result, the spread between long and short positions increased by only 15. The weekly closing price dropped to 1.2567 from 1.2624.
Indicator Signals:
Moving Averages
Trading is taking place below the 30 and 50-day moving averages, indicating the likelihood of further pound depreciation.
Note: The author considers the period and prices of moving averages on the H1 hourly chart, which differs from the general definition of classical daily moving averages on the D1 daily chart.
Bollinger Bands
In the event of a decline, the lower boundary of the indicator, around 1.2395, will act as support.
Description of Indicators
• Moving average (determines the current trend by smoothing volatility and noise). Period 50. Marked in yellow on the chart.
• Moving average (determines the current trend by smoothing volatility and noise). Period 30. Marked in green on the chart.
• MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages). Fast EMA period 12. Slow EMA period 26. SMA period 9.
• Bollinger Bands. Period 20.
• Non-commercial traders - speculators, such as individual traders, hedge funds, and large institutions, using the futures market for speculative purposes and meeting specific requirements.
• Long non-commercial positions represent the total long open positions of non-commercial traders.
• Short non-commercial positions represent the total short open positions of non-commercial traders.
• The total non-commercial net position is the difference between non-commercial traders' short and long positions.