FX.co ★ GBP/USD: trading plan for European session on February 22. Commitment of Traders COT. GBP upward potential limited

Yesterday, there were several entry points. Now, let's look at the 5-minute chart and figure out what actually happened. In my morning article, I turned your attention to 1.2016 and recommended making decisions with this level in focus. I did not open positions at 1.2016 due to a small increase in volatility before the release of the US PMI indices. In the afternoon, the pair tested the support level of 1.2060, which led to a buy signal and a jump in the pound sterling to 1.2143. A false breakout of the new weekly high gave an excellent entry point into short positions with a correction of 40 pips.

When to open long positions on GBP/USD:

Strong US PMI indices did not significantly undermine the upward correction of the pound sterling. However, further growth may be limited following the release of the Fed's meeting minutes. Bulls will have a chance to continue the correction as the economic calendar for the UK will remain empty in the afternoon. However, they need to push the pair above 1.2143 which is quite difficult due to divergence on the MACD indicator. For this reason, a downward correction to the support level of 1.2065, formed yesterday, looks more likely. There are also moving averages at this level that are benefiting bulls. A decline and a false breakout of 1.2065 will create a buy signal with the prospect of further growth and a test of a weekly high of 1.2143. Only after consolidation and a downward retest, GBP/USD is likely to hit a high of 1.2213. If the pair advances above this level, it may reach 1.2265 At this level, I recommend locking in profits. If the bulls fail to push the pair to 1.2065 in the morning, which is unlikely, the bears will take control of the market. The pressure on GBP/USD will increase. In this case, I advise you not to rush into purchases and open long positions only at the support level of 1.1988 after a false breakout. You could buy GBP/USD at a bounce from a monthly low of 1.1919, keeping in mind an upward intraday correction of 30-35 pips.

When to open short positions on GBP/USD:

Sellers managed to protect 1.2143 yesterday. However, bulls and bears are likely to tussle for this level again today. Now, the bears' main priority is to defend this level. In the current market conditions, it will give an excellent sell signal. A rise and a false breakout of this level amid the lack of macro stats and the divergence on the MACD indicator may create entry points into short positions. GBP/USD could slide to the support level of 1.2065. Buyers aimed at this level yesterday. Only a breakout and an upward test of this level will undermine a further bullish correction. It will facilitate a bear market, generating a sell signal with a fall to the support level of 1.1988. A more distant target will be the 1.1919 level. If the pair sinks to this level, it will indicate a downtrend. At this level, I recommend locking in profits. If GBP/USD climbs and bears show no energy at 1.2143, the bulls are likely to dominate the market. In this case, the bears will retreat again and only a false breakout of the resistance level 1.2213 will give an entry point into short positions. If bears fail to protect this level, you could sell GBP/USD at a bounce from 1.2265, keeping in mind a downward intraday correction of 30-35 pips.

COT report

Due to a technical failure of the CFTC that has been going on for more than two weeks, new COT reports continue to be delayed. The most recent data was published on January 24. The COT report for January 24 logged a plunge in both long and short positions. However, this drop was within the limits, especially if taking into account the problems the UK is now facing. Its government has to deal with strikes for fair pay and fight against stubborn inflation at the same time. According to the latest COT report, short non-commercial positions decreased by 7,476 to 58,690, and long non-commercial positions fell by 6,713 to 34,756. As a result, the non-commercial net position came in at -23,934 versus -24,697 a week ago. These are insignificant changes. Therefore, they are unlikely to affect market sentiment. That is why it is important to monitor macroeconomic reports in the UK and the BoE's rate decisions. The weekly closing price rose to 1.2350 from 1.2290.

Indicators' signals:

Trading is carried out above the 30 and 50 daily moving averages, which indicates a further upward correction.

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 1.2140 will serve as resistance. In case of a decline, the indicator's lower border at 1.2085 will act as support.

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.