FX.co ★ GBP/USD: trading plan for European session on December 22. Commitment of Traders. GBP keeps declining

Yesterday, there were several excellent entry points. Let's look at the 5-minute chart and figure out what actually happened. In the morning article, I turned your attention to 1.2152 and recommended making decisions with this level in focus. A decline and a false breakout of 1.2152 following weak UK data created a buy signal. The GBP/USD pair rose by 30 pips. However, the pair failed to cement an upward movement. Shortly after, the pound sterling dropped below 1.2152. It slid by 60 pips, reaching 1.2087 after an upward retest and a sell signal. In the afternoon, the pair recovered and climbed by 60 amid a false breakout of 1.2087 and a buy signal. Yet, bears returned to the market and protected 1.2152. So, the pair failed to settle above this level, which triggered a sell signal and a decrease of 60 pips to 1.2087.

When to open long positions on GBP/USD:

In the Asian session, the pair managed to recover above the pivot point. So, it is likely to move in yesterday's sideways channel. However, if the UK GDP figures for the 3d quarter as well as trade balance data are downbeat, the pair could face bearish pressure again. The bulls will have to defend 1.2105. If so, I would advise you to open long positions only after a false breakout takes place. In this case, the price will grow to a new resistance level of 1.2161 which acts as the middle of the sideways range. The pound sterling may be trapped there. A breakout above this level and the positive economic reports could help the pair advance to 1.2219. After testing this level, large traders are likely to enter the market. A breakout and a downward retest of this level will open the way to 1.2260 where I recommend locking in profits. If the bulls fail to push the pair to 1.2105, it would be wise to cancel long positions until a false breakout of the weekly low of 1.2057 takes place. You could buy GBP/USD immediately at a bounce from 1.2003, keeping in mind an intraday upward correction of 30-35 pips.

When to open short positions on GBP/USD:

Sellers managed to push the pair below the swing low yesterday, keeping the market under their control. So, the chance of a downtrend is rather high. After a sharp increase that occurred during the Asian session, it is better to sell the pound sterling at higher levels. If GDP data is upbeat and the pair rises, only a false breakout of 1.2161, the nearest resistance level, will give a good sell signal. At this level, the moving averages are passing. If so, the pair is likely to decline to 1.2105. Only a breakout and an upward test of this level will create an entry point into short positions with the prospect of a decrease to a weekly low of 1.2057. A more distant target will be the 1.2003 level where I recommend locking in profits. If GBP/USD rises and bears show no energy at 1.2161, which is also likely, the bulls could regain the upper hand. The pair will again be trapped in the sideways channel. In this case, only a false breakout of 1.2219 will give a sell signal with a further downward movement. If bears show no activity there, you could sell GBP/USD immediately at a bounce from a low of 1.2260, keeping in mind a downward intraday correction of 30-35.

COT report

The COT report for December 13th logged a rise in long and short positions. Given that the number of long positions is higher, it means that the bullish sentiment is strong now. Traders are ready to buy the pair at the current highs. Last week, the Bank of England announced that it would remain committed to aggressive tightening to curb stubbornly high inflation, which slowed down a bit last month. However, many analysts warn that the regulator's decision to stick to a hawkish stance may trigger a recession. It is sure to limit the pair's upside potential. For this reason, it is better 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.

Indicators' signals:

Trading is carried out slightly below the 30 and 50 daily moving averages. It indicates that bears are trying to keep the market under control.

Moving averages

Note: The period and prices of moving averages are considered by the author on the H1 (1-hour) chart and differ from the general definition of the classic daily moving averages on the daily D1 chart.

Bollinger Bands

If GBP/USD rises, the indicator's upper border at 1.2145 will serve as resistance.

Description of indicators

• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked yellow on the chart.
• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked green on the chart.
• MACD indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
• Bollinger Bands (Bollinger Bands). Period 20
• Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
• Long non-commercial positions represent the total long open position of non-commercial traders.
• Short non-commercial positions represent the total short open position of non-commercial traders.
• Total non-commercial net position is the difference between the short and long positions of non-commercial traders.