Yesterday, the pair formed several entry signals. Let's have a look at what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.2665 as a possible entry point. A rise and forming a false breakout at this mark generated a sell signal, but the pair did not fall, and traders had to take losses. In the afternoon, a false breakout at 1.2726 produced an excellent buy signal, which sent the pair up by more than 30 pips. The bears' safeguarding the local high at 1.2754 generated a sell signal. As a result, the pair was down by 35 pips.
COT report:
Before analyzing the technical picture, let's examine what has been going on in the futures market. The Commitment of Traders (COT) report for December 12 showed an increase in long positions and a decline in short ones. Obviously, there is still demand for the pound, as the Bank of England's recent decision to leave interest rates unchanged as it continues its fight to curb inflation, as well as statements by BoE Governor Andrew Bailey that rates will remain high for an extended period, has revitalized the pound. As a result, the British currency strengthened against the U.S. dollar. Another thing is how the UK economy, which has been struggling lately, will react to all this. A batch of UK and US inflation data will be released soon, and if prices rise, we can bet on the pair's further growth. The latest COT report indicates that non-commercial long positions rose by 5,652 to 72,011, while non-commercial short positions were down by 4,264 to 50,430. As a result, the spread between long and short positions decreased by 3,373.
For long positions on GBP/USD:
Today everything will be tied to the UK CPI data, as well as the core index. If figures increase, this will surely strengthen the pound's position even more. If the UK inflation rate shows growth by the end of the year, this will support the BoE's position that it announced last week. But if the figures decline, the pound may fall after it actively grew on Tuesday. In this case, we would like to see a false breakout near 1.2703. Below this level, we have the moving averages that favor the bulls. This will provide an entry point aimed at the resistance at 1.2730, established yesterday. A breakout and a downward test on the back of strong inflation will strengthen the pair's chances of recovering, which will generate a buy signal, and open the way to 1.2758 - weekly high. A move above this range will indicate a surge towards the high of 1.2790 - this month's high. If the pair falls and there is no buying activity at 1.2703, sellers will get a chance to regain control of the market. In that case, I'll postpone opening long positions until the price tests the support at 1.2677. Buying is also possible there but only on a false breakout. Long positions on GBP/USD can be opened immediately on a rebound from 1.2652, aiming for a correction of 30-35 pips within the day.
For short positions on GBP/USD:
Bears suffered a defeat as more and more traders bet that UK inflation will surge at the end of this year. If the latest data exceeds economists' forecasts, sellers will have to defend the nearest resistance at 1.2730. Forming a false breakout there will be a reason to open short positions with the goal of moving the price down and a test of the support at 1.2703. A breakout and an upward retest of this range will increase the pressure on the pair, giving the bears an advantage and a sell entry point with the goal of testing 1.2677, where I expect buyers to emerge. The next target would be the 1.2652 low, where I will take profits. If GBP/USD rises and there is no activity at 1.2730, the bulls will gain a strong advantage, leading to an upward movement towards the next resistance at 1.2758. I would also advise selling there only on a false breakout. If there is no activity there either, I recommend opening short positions on GBP/USD from 1.2790, anticipating a 30-35 pip downward rebound within the day.
Indicator signals:
Moving Averages
The instrument is trading above the 30 and 50-day moving averages. It indicates that GBP/USD is likely to rise further.
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 grows, the indicator's upper border near 1.2758 will serve as resistance. In case it declines, the indicator's lower border near 1.2677 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.