Yesterday, the pair formed several entry signals. Let's see what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.2379 as a possible entry point. A decline and a false breakout at 1.2379 generated a buy signal. As a result, the pair rose by almost 30 pips. In the afternoon, similar purchases at 1.2372 produced another buy signal and the pair rose to 1.2406.
COT report:
Before diving into the prospects of the GBP/USD pair, let's explore the futures market and the recent shifts in the Commitments of Traders (COT) positions. In the COT report for September 12, there was an increase in both long and short positions. Reports on a spike in UK average earnings, which clearly has a negative impact on inflation, and the contraction of the UK GDP led to another pound sell-off, which may intensify in the near future. In addition to the Bank of England meeting, the UK Consumer Price Index will also come out this week. Almost all economists expect inflationary pressures to persist in the UK this August. I think you can all understand what this could lead to, against the background of a weakening economy - another pound sell-off against the US dollar. The latest COT report indicates that non-commercial long positions rose by 4,720 to the level of 97,365, while non-commercial short positions also jumped by 4,930 to 51,191. As a result, the spread between long and short positions rose by 2,735. GBP/USD closed last week lower at 1.2486 against 1.2567 a week ago.
For long positions on GBP/USD:
In the absence of UK reports, buyers need to be aware of the latest things that are happening. I expect an attempt to move below the level of 1.2372, which was repeatedly tested on Monday. Take note that it is still important to defend this mark. A false breakout near 1.2372 after updating yesterday's low, will serve as a buy signal and the pair could rise towards the resistance at 1.2406, which was also formed on Monday. A breakout and a downward retest of this range, which can only happen amid talk of weaker inflation in the UK, will produce a buy signal and boost buyers' confidence, preserving the chance to hit a new high of 1.2442. In case the pair breaks above this range, we can talk about a breakout to 1.2477, where I plan to take profits. If GBP/USD declines and a lack of activity at 1.2372, which is where things are headed, the pressure on the pound will increase again. In such a case, only the defense of the next area at 1.2340 and a false breakout there will signal opening long positions. I plan to buy GBP/USD immediately on a rebound from 1.2308, bearing in mind an intraday correction of 30-35 pips.
For short positions on GBP/USD:
Yesterday, sellers asserted their strength and did not allow the bulls to consolidate near the daily highs. It would be nice to see a breakout to 1.2406 in the first half of the day, similar to yesterday. A false breakout at this mark would produce a sell signal and GBP/USD may decline and test the support at 1.2372. Bears will get an advantage after a breakout and an upward retest of this range, providing an opportunity to update 1.2340. A more distant target will be 1.2308, where I will take profits. If the pair rises and we see weak trading at 1.2406, the buyers will get a chance to correct higher, and the pair could rise to the next resistance at 1.2442. If downward movement stalls there, one can sell the British pound on a bounce from 1.2477, bearing in mind a 30-35-pips downward intraday correction.
Indicator signals:
Moving Averages
The instrument is trading around the 30 and 50-day moving averages. It indicates a slight market equilibrium.
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
In case of growth, the upper band of the indicator near 1.2400 will act as resistance. In case of a decline, the lower band of the indicator near 1.2370 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.