Yesterday, GBP/USD generated several signals to enter the market. Now let's look at the 5-minute chart and try to figure out what actually happened. In my previous forecast, I indicated the level of 1.2659 and planned to make decisions on entering the market from there. A breakout and retest of this range, which the pair tried to get close to three times, produced a sell signal, which sent the pair down to 1.2627. Safeguarding 1.2627 before the Bank of England announced its decision generated a buy signal. As a result, the pair grew by more than 60 pips. A breakthrough and retest of 1.2659 produced a buy signal, which sent the pound up by more than 100 pips.
For long positions on GBP/USD:
The BoE's decision to leave interest rates unchanged made it possible for the pound to recover. BoE Governor Andrew Bailey opened the door to interest rate cuts, but the central bank wants to see "more evidence" of falling inflation before cutting, but he also warned that they're not there yet. Things are expected to start moving in the spring, so there were absolutely no reasons not to buy the pound. Moving forward, GBP/USD looks to US labor market data, which could trigger a new surge, but we will talk more about it in the forecast for the second half of the day. For now, during the European session, only the speech of Bank of England MPC member Huw Pill could somehow influence market sentiments.
An optimal buying opportunity might arise on dips. I will try to buy near the nearest support at 1.2737, established at the end of yesterday. Forming a false breakout on this mark will give an entry point in development of an uptrend and potentially testing 1.2771. A breakout and consolidation above this range will strengthen the demand for the pound and open the way to 1.2797. The farthest target will be the 1.2823 high, where I will take profits. In a scenario where GBP/USD falls and there are no bulls at 1.2737, we may see a minor sell-off in the first half of the day, but we shouldn't worry about it. A false breakout near the next support at 1.2708, take note that we have the moving averages above this level, will confirm the correct entry point. You can open long positions on GBP/USD immediately on a rebound from the low of 1.2679, bearing in mind an intraday correction of 30-35 pips.
For short positions on GBP/USD:
Sellers missed the market, which was expected after yesterday's BoE meeting. Today, the sellers may remain under pressure, so I advise you not to rush with short positions. In case the pound recovers in the first half of the day, I plan to act only after a false breakout forms at 1.2771. This would confirm the presence of big players in the market, creating a sell signal with the downward target at 1.2737. 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 1.2708, where I expect big buyers to emerge. A lower target will be the area of 1.2679, where I will take profits. If GBP/USD grows and there are no bears at 1.2771, which is likely to happen, the bulls will regain the initiative and continue to build a new trend. In such a case, I would delay short positions until a false breakout at 1.2797. 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 within the day.
COT report:
In the COT report (Commitment of Traders) for January 23, we find an increase in both long and short positions. Considering that traders are in a state of confusion, much like the Bank of England, the pound continues to receive support from buyers of risk assets. It is clear that the central bank is unlikely to opt for an imminent interest rate cut, especially after recent news about the resurgence of inflation pressures. This week, the two key central bank meetings will help determine the pound's direction – the Federal Reserve meeting and the Bank of England meeting. A firm stance may negatively impact the demand for risk assets, including the British pound; however, we shouldn't expect a significant decline from the pound. The latest COT report said that long non-commercial positions rose by 6,369 to 72,599, while short non-commercial positions increased by 5,863 to 41,162. As a result, the spread between long and short positions increased by 1,014.
Indicator signals:
Moving Averages
Trading above the 30- and 50-day moving averages indicates possible growth.
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 boundary near 1.2653 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.