Yesterday, 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 1.2281 as a possible entry point. A rise and false breakout at this mark produced a great sell signal, sending the pair down by more than 40 pips. In the afternoon, a breakout and retest of levels 1.2219 and 1.2188 sustained the bear market with sell signals, which resulted in quite significant declines.
For long positions on GBP/USD:
The British pound sharply traded lower after UK Services PMI figures printed red. Strong US data broadly beat forecasts, marking accelerating economic activity in the US economy, which only mounted pressure on the pair. In the absence of UK reports, we expect the pair to remain under pressure in the first half of the day. I would prefer to act after a false breakout near the new low at 1.2154. In this case, the target will be the nearest resistance level at 1.2180, which was formed yesterday. Slightly above this level, we have the moving averages that favor the bears. A breakout and consolidation above it will bring back the bulls, providing a chance to update 1.2219. The more distant target will be 1.2253, where I'd be taking profits. If the pair declines to 1.2154 without buyer activity, a false breakout near the support level at 1.2122 will signal opening long positions. I will open long positions directly on a rebound from the low of 1.2092, aiming for a correction of 30-35 pips within the day.
For short positions on GBP/USD:
Sellers completed their tasks yesterday, and today, the goal is to update the weekly low. To maintain control over the market, it is crucial to defend the nearest resistance level at 1.2188, formed at the end of Tuesday. A false breakout at this level will produce a sell signal, which could push the pair towards the support level at 1.2154. Breaching this level and an upward retest will deal a more serious blow to the bulls' positions, providing a window to aim for 1.2122. This is where buyers may step in. The more distant target will be the 1.2092 low, where I'd be taking profits. If GBP/USD grows and there are no bears at 1.2188, demand for the pound will return and buyers will have a chance to regain control of the market. In that case, I will postpone selling until a false breakout at 1.2219. If downward movement stalls there, one can sell the British pound on a bounce from 1.2253, bearing in mind a 30-35-pips downward intraday correction.
COT report:
In the COT (Commitment of Traders) report for October 17, we see a decrease in long positions and a slight increase in short ones. However, this didn't have a significant impact on the overall positioning. Given that UK inflation data signaled a sustained pace of growth, and Federal Reserve officials continued to emphasize that interest rates would not be raised anytime soon, this exerted pressure on the dollar and the pound traded higher. It appears that the trend toward strengthening risk assets will persist in the near term leading up to the November FOMC meeting. The latest COT report said that long non-commercial positions fell by 753 to 65,537, while short non-commercial positions increased by 408 to 76,746. As a result, the spread between long and short positions narrowed by 51. The weekly price reached 1.2179, down from 1.2284.
Indicator signals:
Moving Averages
The instrument is trading below the 30 and 50-day moving averages. It indicates that GBP/USD is likely to decline lower.
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 GBP/USD declines, the indicator's lower border near 1.2140 will serve 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.