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 1.2714 as a possible entry point. A breakthrough took place, but there was no retest, so I was not able to enter the market. In the afternoon, a decline and a false breakout at 1.2711 produced a buy signal, which sent the pair up to 1.2735. An unsuccessful consolidation on this mark generated a sell signal, which sent the pair down by about 20 pips.
For long positions on GBP/USD:
Yesterday, Bank of England Governor Andrew Bailey's speech supported the pound in the second half of the day, as did the dovish tone of Federal Reserve representatives. However, it is too early to say that the bulls won. Today, the UK will not release any important reports, so the focus will shift to the second half of the day and US inflation, which we will discuss in our next overview. In case the pair is under pressure, the bulls will have to be active in the area of the nearest support at 1.2739, established yesterday. A false breakout there will provide an excellent entry point for long positions in developing the bullish market. It will also help to bring GBP/USD back to the resistance area of 1.2767, where trading is currently taking place. A breakout and consolidation above this range will strengthen the demand for the pound and open the way to 1.2798. The farthest target will be the 1.2823 high, where I will take profits. If the pair falls and there is no buying activity at 1.2739 in the first half of the day, the bears will not gain a significant advantage, as much will depend on US inflation data. In this case, I will postpone buying until the test of 1.2712. Only a false breakout there will signal opening long positions. I plan to buy GBP/USD immediately on a rebound from the low of 1.2686, aiming for an intraday correction of 30-35 pips.
For short positions on GBP/USD:
The sellers still have a lot of problems to deal with and I expect them to emerge around the significant resistance at 1.2767, formed on January 4. A false breakout at this level would confirm the presence of major sellers in the market, creating a sell signal with the expectation of the pair's decline to 1.2739. 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 open the way to 1.2712. Just above this level, we have the moving averages that favor the bulls. The furthest target will be the area of 1.2686, but only after the US inflation data. If GBP/USD rises and there is no activity at 1.2767, and so far everything is moving towards that, traders will continue to develop a bullish market. In this case, I would delay short positions until a false breakout at 1.2798. If there is no downward movement there, I will sell GBP/USD immediately on a bounce right from 1.2823, considering a downward correction of 30-35 pips.
COT report:
The Commitment of Traders (COT) report for January 2 showed an increase in both long and short positions. It is clear that the pound is in demand for certain reasons. 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 - all of this goes against the expected policy of the Federal Reserve, where the central bank plans to lower interest rates, citing good progress in addressing inflation. This divergence is exerting pressure on the dollar, and weakens the GBP/USD pair in the medium term. If the latest US inflation data pleases central bank officials, we can expect another rise in GBP/USD. The latest COT report indicates that non-commercial long positions rose by 3,044 to 61,794, while non-commercial short positions were up by 1,931 to 46,589. As a result, the spread between long and short positions decreased by 38.
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.
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 1.2712 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.