FX.co ★ GBP/USD: trading plan for North American session on December 21, 2022.Overview of morning trading. Pound moves to weekly low

In my previous analytical review, I drew your attention to the level of 1.2152 and recommended entering the market from it. Let's have a look at the 5-minute chart and analyze the situation. The price declined and made a false breakout at 1.2152 after the weak UK data. This created a buy signal, which resulted in the upside movement of 30 pips. However, the pair did not continue to rise. After that, the British pound settled below 1.2152. A downward test of this level along with a sell signal led to the downside movement to 1.2087. This allowed traders to take more than 60 pips of profit.

Long positions on GBP/USD:

Bulls may return to the market only after weak reports on the consumer confidence indicator and the US existing home sales. They also need to prevent the price from dropping below the weekly lows. In order to do this, a false breakout should be made near 1.2087 even if the price drops below yesterday's low. However, the pair may rise significantly after that. If it does not happen, the British pound is likely to continue to fall. This scenario assumes a dash to 1.2152, where the moving averages are located. The MAs are supporting bears now. A top-down test of this range may give another buy signal and support the bullish rally, pushing the price to 1.2219. This level may become a new upper boundary of the sideways channel. Breaking through this level, bulls may increase their activity. This is likely to give a buy signal with the target at the high of 1.2301, where traders may lock in profits. If bulls fail to follow this scenario in the second half of the day and lose their chance at 1.2087, the bear market may return. In such a case, it is better to buy GBP from 1.2003 after a false breakout. One may open long positions on a rebound from 1.1904 or lower near 1.1820, allowing an intraday correction of 30-35 pips.

Short positions on GBP/USD:

Bears made quite a lot today and now are aiming at the lower boundary of the sideways channel. There are no fundamental factors supporting it. Apparently, bulls start to leave the market at the end of the year, understanding that the pair is unlikely to reach new monthly highs. If the pair grows after the data release, a false breakout near the resistance of 1.2152 may create a sell signal, allowing the price to return to the low of 1.2087. Breaking through this level as well as making a downward test may give an additional sell signal, which will strengthen the bear market. The target is located at 1.2003. At this level, bears are likely to face some difficulties again. However, the pair may pierce this level and make a top-down test. This may open the way to the area of 1.1904, where traders can take profits. If the pair does not decline from 1.2152, where moving averages support bears, bulls are likely to try to regain control over the market. This will lead to a breakthrough of the area of 1.2219. A false breakout at this level may give an entry point into short positions. In case there is no activity there either, it would be better to sell GBP on a rebound from 1.2301, allowing an intraday correction of 30-35 pips.

The COT report for December 13th logged a rise in long and short positions. Given that the number of long positions exceeds that of short positions, the pair is now facing strong buying pressure. In fact, traders are ready to buy the pair at the current high price. Last week, the Bank of England announced it would continue hiking rates to fight stubborn inflation, which slowed down a bit last month. The regulator's current policy makes experts think that the UK economy is in a recession. Therefore, the pair's growth potential is likely to be limited. For that reason, it is wiser to wait for a downward correction in order to buy the instrument. According to the latest COT report, short non-commercial positions rose by 1,015 to 57,747 and long non-commercial positions grew by 3,469 to 32,008. Consequently, the non-commercial net position came in at -25,739 versus -28,193 a week ago. The weekly closing price of GBP/USD increased to 1.2377 versus 1.2149.

Indicator signals:

Moving averages

Trading is carried out below the 30-day and 50-day moving averages, indicating that bears are trying to regain control over the market.

Note: The period and prices of moving averages are viewed by the author on the hourly chart and differ from the general definition of classic daily moving averages on the daily chart.

Bollinger Bands

If the pair increases, the level of 1.2219 will offer resistance in line with the upper band.

Indicator description:

• Moving average (MA) determines the current trend by smoothing volatility and noise. Period 50. Colored yellow on the chart.
• Moving average (MA) determines the current trend by smoothing volatility and noise. Period 30. Colored green on the chart.
• Moving Average Convergence/Divergence (MACD). Fast EMA 12. Slow EMA 26. SMA 9.
• Bollinger Bands. Period 20
• 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 are the total long position of non-commercial traders.
• Short non-commercial positions are the total short position of non-commercial traders.
• Total non-commercial net position is the difference between the short and long positions of non-commercial traders.