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 1.2175 as a possible entry point. A decline and false breakout at this mark produced a buy signal, but the pair did not actively rise. In the afternoon, selling after a false breakout at 1.2212 made it possible for traders to take only 20 pips of profit, afterwards the pound was in demand again.
COT report:
Before delving into the technical picture of the pound, let's take a look at what happened in the futures market. The COT (Commitment of Traders) report for October 3 logged a decrease in long positions and a very large increase in short positions. It means there are fewer and fewer buyers of the pound sterling, especially after downbeat UK GDP data and strong US reports, indicating the need for another interest rate hike. This makes the US dollar more attractive in the medium term. While the current situation in the Middle East may not significantly affect the British pound, it does deter investors from risk assets, thereby maintaining the US dollar's appeal as a safe-haven asset. The latest COT report said long non-commercial positions fell by 10,839 to 73,911, while short non-commercial positions increased by 11,510 to 80,591. As a result, the spread between long and short positions narrowed by 629. The weekly price dipped and stood at 1.2091 against 1.2162.
For long positions on GBP/USD:
Today, the UK will not release any economic reports, but the summary and minutes of the Bank of England's Financial Policy Committee meeting will be published. The Bank indicated that it could conclude its cycle of interest rate hikes in the near future, which resulted in the pound being sold. If traders find something interesting in the minutes, the pressure on the pair may return, and it will trade in the sideways channel. For this reason, it's best to act around the nearest support at 1.2210, which is in line with the bullish moving averages. A false breakout at this mark will serve as an entry point for long positions allowing the price to reach a major resistance at 1.2256, which was formed at the end of last week. A breakout and downward test of this range may push the pound to recover, producing a buy signal and allowing the pair to reach a new resistance at 1.2303. In case the pair climbs above this range, the price could surge to 1.2342, where I'd be looking to take profits. If the pair declines to 1.2210 without buyer activity, which is where things are heading, bearish pressure on the pound will increase. In this case, I will postpone selling until a false breakout at 1.2164, from where the large players were active yesterday. I plan to instantly buy GBP/USD on a bounce from 1.2108, aiming for a daily intraday correction of 30-35 pips.
For short positions on GBP/USD:
Yesterday, the bears repeatedly tried to sell the pound and exert pressure on the pair, but the bulls regained their positions during the US session. Today, the bears should guard the resistance at 1.2256, which is also acting as the upper band of the sideways channel. A false breakout at this level, in hopes that the pair would fall, will generate a sell signal with a movement towards the support level at 1.2210. Breaching this level and subsequently retesting it from below would strengthen the bears' advantage, providing a window to aim for 1.2164. The more distant target will be 1.2108, where I'd be taking profits. If GBP/USD grows and there are no bears at 1.2256, the bulls will get a strong advantage, which will lead the pair up to the next resistance at 1.2303. You can sell here as well but only after a false breakout. If there is no downward movement there, I'd sell the pound on an immediate rebound from 1.2342, aiming for a correction of 30-35 pips.
Indicator signals:
Moving Averages
Trading just above the 30- and 50-day moving averages indicates sideways movement.
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 declines, the lower band of the indicator around 1.2175 will act as support. In case of an upward movement, the upper band of the indicator around 1.2265 will act as resistance.
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.