Last Friday, the pair formed some great market entry signals. Let's have a look at what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.2092 as a possible entry point. A decline and false breakout at this mark produced a great buy signal, sending the pair up by more than 35 pips. In the afternoon, a false breakout at 1.2137 produced a sell signal, which led to a drop in the price by 15 pips, but closer to the middle of the US session, a breakout and retest of 1.2137 formed a buy signal. As a result, the pair went up by 35 pips.
For long positions on GBP/USD:
In the absence of UK data, and considering the bulls' attempts to return to the market, we can expect the pair to stay in the sideways channel. I plan to buy after a false breakout near the middle of the channel at 1.2132. This is where the moving averages support the buyers. In this case, it's best to act around the nearest resistance at 1.2180, which formed on Friday. A breakout and consolidation above this range will boost buyers' confidence, making it possible to update 1.2216. The more distant target will be 1.2247, where I'd be taking profits. If the pair declines to 1.2132 without buyer activity, only a false breakout near the major support at 1.2092 will signal opening long positions. I plan to instantly buy GBP/USD on a bounce from the low of 1.2066, aiming for an intraday correction of 30-35 pips.
For short positions on GBP/USD:
The bears repeatedly tried but failed to cling to the weekly lows. To maintain control over the market, it is crucial to defend the nearest resistance level at 1.2180. A false breakout at this level will produce a sell signal, which could push the pair towards the support level at 1.2132. Breaching this level and an upward retest will deal a more serious blow to the bulls' positions, providing a window to aim for 1.2092. The more distant target will be the low of 1.2066, where I'd be taking profits. If GBP/USD grows and there are no bears at 1.2180, the demand for the pound will return and the bulls will have a chance to regain control of the market. In such a scenario, I will refrain from going short until a false breakout at 1.2216. If downward movement stalls there, one can sell the British pound on a bounce from 1.2247, bearing in mind a 30-35-pips downward intraday correction.
COT report:
In the COT (Commitment of Traders) report for October 10, we see a decrease in both long and short positions. This suggests that traders made slight adjustments to their positions ahead of a rather important US inflation report released at the end of the previous week. Given that US prices continue to rise, it's likely to negatively impact the Federal Reserve and its decisions regarding interest rates. So, despite the pound's recent attempts at correcting higher, it could end with another sell-off and the pair could fall to new monthly lows. This week, there are quite a number of Federal Reserve officials who are scheduled to speak, which will serve as an important reference point. The latest COT report said that long non-commercial positions fell by 7,621 to 66,290, while short non-commercial positions dropped by 4,253 to 76,338. As a result, the spread between long and short positions narrowed by 836. The weekly price reached 1.2284 versus 1.2091 in the previous week.
Indicator signals:
Moving Averages
Trading around the 30- and 50-day moving averages indicates a 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 1.2130 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.