FX.co ★ GBP/USD: trading plan for European session on January 25. COT report. GBP bounces after massive sell-off

Yesterday, traders received several signals to enter the market. Let us take a look at the 5-minute chart to clear up the market situation. A decline and a false breakout of 1.2384 led to a good buy signal, which allowed the pound sterling to add just 20 pips. The currency failed to hit the expected level. After the second test of 1.2384, the price broke it, whereas weak data on the UK business activity boosted pressure on the pair. After a massive sell-off, a decline and a false breakout of 1.2273 gave a perfect buy signal. As a result, the price increased by more than 60 pips.

Conditions for opening long positions in GBP/USD:

Today, the UK will not publish any important reports. Data on the PPI input and PPI output will hardly affect the market situation. Against the backdrop, buyers still have a chance for an upward correction and control over 1.2336. I would open buy orders at the level of 1.2267. Yesterday, big traders entered the market at this level. A false breakout of this level may push the price to 1.2336. Slightly above this level, there are MAs that may cap the upward potential of the pair. If the price settles at this level and downwardly tests it, the pound sterling may jump to the high of 1.2409 formed yesterday. If the price exceeds this level, it may climb to 1.2485, where it is better to lock in profits. If bulls fail to protect 1.2267, pressure on the asset will increase, thus causing a downward correction. That is why traders should be cautious when opening buy orders. It is better to go long after a false breakout of the low of 1.2194. It is also possible to buy the asset just after a bounce off 1.2146, expecting an increase of 30-35 pips.

Conditions for opening short positions on GBP/USD:

Yesterday, bears benefited from the situation and pushed the pound sterling quite low. Now, they should primarily protect the resistance level of 1.2336 and push the price below yesterday's low of 1.2267. This may intensify the correctional movement. If the price jumps in the first part of the day, a false breakout of 1.2336 will be enough to get a sell signal with the target at 1.2267. A breakout and an upward test of this area will seriously affect the bullish trend and give a sell signal with the target at 1.2194. If the price tests this level, a new downtrend could be formed. The farthest target is located at 1.2146, where it is recommended to lock in profits. If the pound/dollar pair increases and bears fail to protect 1.2336, bulls will regain control. In the event of this, only a false breakout of the high of 1.2409 will give a sell signal. If bears fail to protect this level, it will be possible to sell from the high of 1.2486, expecting a decline of 30-35 pips.

COT report

According to the COT report from January 17, the number of both long and short positions increased. It is important to understand that the Fed's aggressive policy is no longer as effective as it used to be. A slowdown in economic growth and a decrease in retail sales are the first signals of a looming recession in the US. At the same time, the Bank of England keeps combating inflation. Although inflation is a bit lower, it is still not enough for the regulator to alter its monetary stance. Therefore, aggressive tightening is likely to go on. This may allow the pound sterling to recoup previous losses. The recent COT report unveiled that the number of short non-commercial positions increased by 703 to 66,166, while the number of long non-commercial positions surged by 5,4628 to 41,469. Consequently, the non-commercial net position came in at -24,697 versus -29,456 a week ago. These are insignificant changes. Therefore, they are unlikely to affect the market sentiment. That is why traders should monitor macroeconomic reports from the UK as they may drop a hint about the plan of the BoE. The weekly closing price increased to 1.2290 from 1.2182.

Signals of indicators:

Moving Averages

Trading is performed slightly below 30- and 50-day moving averages, which points to bears' attempt to return to the market.

Note: The author considers the period and prices of moving averages on the one-hour chart which differs from the general definition of the classic daily moving averages on the daily chart.

Bollinger Bands

If the pair increases, the resistance level will be formed by the upper limit of the indicator located at 1.2336. In case of a decline, the lower limit of the indicator located at 1.2270 will act as support.

Description of indicators

• Moving average (a moving average determines the current trend by smoothing volatility and noise). The period is 50. It is marked in yellow on the chart.
• Moving average (a moving average determines the current trend by smoothing volatility and noise). The period is 30. It is marked in green on the graph.
• MACD indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). A fast EMA period is 12. A slow EMA period is 26. The SMA period is 9.
• Bollinger Bands. The period is 20.
• Non-profit speculative traders are individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
• Long non-commercial positions are the total number of long positions opened by non-commercial traders.
• Short non-commercial positions are the total number of short positions opened by non-commercial traders.
• The total non-commercial net position is a difference in the number of short and long positions opened by non-commercial traders.