Last Friday, 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 1.2693 as a possible entry point. A breakout and retest of 1.2693 generated a buy signal, which sent the pair up by more than 30 pips. In the afternoon, safeguarding 1.2719 produced another buy signal. As a result, the pair rose by 20 pips.
For long positions on GBP/USD:
Sellers tried to put pressure on the pound on Friday afternoon after the release of fundamental data, but it did not come to a major sell-off. Figures showing a further year-on-year decline in the US Personal Consumption Expenditure Index exerted pressure on the US dollar, although the market initially reacted with small short positions. The decline in consumer spending and a sharp 12.2% collapse in US primary housing market sales in November did not inspire optimism either. Today, the economic calendar is empty due to the Christmas holiday, so at the market opening, I expect the pressure to return. I will act after a false breakout at 1.2687, which is in line with the bullish moving averages. This will create a buy signal, with the goal of pushing the pair up to the area of 1.2719, as the pair failed to stay above this mark on Friday. A breakout and consolidation above this range will strengthen the demand for the pound and open the way to 1.2757. The farthest target will be the area of 1.2790, where I will take profits. If the pair falls and there is no buying activity at 1.2684, and this level is a kind of the middle of the sideways channel, only a false breakout near the next support at 1.2645 will signal opening long positions. I plan to buy GBP/USD immediately on a rebound from 1.2613, aiming for an intraday correction of 30-35 pips.
For short positions on GBP/USD:
Sellers will get a chance to start a corrective movement after the market opening only if a false breakout is formed near 1.2719. The goal is to push the pair to the middle of the sideways channel at 1.2684, which is in line with the moving averages. A breakout and an upward retest of this range will deal a more serious blow to the bulls' positions, leading to the removal of stop orders and opening the way to 1.2645, where the buyers will be more active, as this level serves as the lower band of the channel. The furthest target will be 1.2613, where I will take profits. If GBP/USD rises and there is no activity at 1.2719, traders will continue to build a bullish market. In such a scenario, I would delay short positions until a false breakout at 1.2757. If there is no downward movement there, I will sell GBP/USD immediately on a bounce right from 1.2790, considering a downward correction of 30-35 pips.
COT report:
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.
Indicator signals:
Moving Averages
Trading just around 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 GBP/USD falls, the indicator's lower border near 1.2670 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.