Several market entry signals were formed yesterday. Let's take a look at the 5-minute chart and see what happened. I paid attention to the 1.1355 level in my morning forecast and advised making decisions on entering the market from it. A false breakout around 1.1355 led to what I thought was a great buy signal, but it never came to a major move up. After moving by 20 points, the demand for the trading instrument slowed down sharply, which resulted in a large sell-off to the area of the next support at 1.1313. It was not possible to get a signal to buy there, since the rebound from this level was quite large and there was nowhere to put a normal stop order. In the afternoon after the Federal Reserve meeting, one could observe a sharp decline in the pound amid higher interest rates in the US, which led to a false breakout and a buy signal to the 1.1264 area. The growth was about 90 points.
When to go long on GBP/USD:
It is unlikely that the Bank of England's decision on the main interest rate will seriously affect the pound today. It is obvious to everyone that the central bank will immediately raise rates by 0.75% and will follow on the heels of the Fed, which will minimize the gap that is currently observed between interest rates, partially reducing the appeal of the dollar. Whether this will provide serious support to the pound - I doubt it very much, at best, it will somehow limit the downward potential of the pair for a short time. The summary on monetary policy will contain the plans of the BoE to further combat high inflation, which has long exceeded double digits. The most convenient scenario for opening long positions in the current difficult conditions will be a false breakout in the area of the next annual low of 1.1220, which was formed following the results of today's Asian session. The goal of recovery in this case will be resistance at 1.1268. Only a breakthrough and a test from the top to the bottom of this range can pull the stop orders of speculators, which creates a new signal to buy with growth to a more distant level of 1.1309, where the moving averages play on the bears' side. However, I don't really count on such a scenario, since an aggressive policy from the BoE will harm the country's economic growth rates. The farthest target will be the area of 1.1354, where I recommend taking profits.
If the GBP/USD falls and there are no bulls at 1.1220, and most likely it will be so, the pair will be under pressure again, which will open up the prospect of updating the low of 1.1168. I recommend opening long positions on GBP/USD immediately for a rebound from 1.1113, or even lower - around 1.1065, counting on correcting 30-35 points within the day.
When to go short on GBP/USD:
The bears are in full control of the market and the new task now is to settle below the next annual low in the 1.1220 area. Of course, a more optimal sell scenario would be a false breakout from 1.1268. Movement to this level may occur just after the announcement of the BoE's decision on interest rates. In this case, you can count on a second decline to 1.1220 and a breakdown of this range. A reverse test from below 1.1220 will provide a good entry point for selling with the goal of a new large sell-off in the area of 1.1168. The farthest target will be a new annual low of 1.1113, where I recommend taking profits.
In case GBP/USD grows and the bears are not active at 1.1268, and this scenario can be realized only in case of a more dovish policy from the BoE, the correction of the pound may lead to the area of 1.1309. Only a false breakout at this level will provide an entry point into short positions, counting on further downward movement. If traders are not active there, I advise you to sell GBP/USD immediately for a rebound from 1.1354, counting on the pair's rebound down by 30-35 points within the day.
COT report:
An increase in short positions and a decrease in long ones were recorded in the Commitment of Traders (COT) report for September 13. This once again confirms the fact that the British pound is in a major downward peak, from which it is not as easy to get out as it might seem. This week, in addition to the Federal Reserve meeting, there will also be a meeting of the Bank of England committee, at which a decision will be made to raise interest rates, which will negatively affect the economy, which is gradually sliding into recession, as evidenced by the latest macroeconomic statistics. A recent speech by BoE Governor Andrew Bailey confirms the committee's aggressive intentions. On the one hand, an increase in interest rates should support the pound, but on the other hand, in the face of a sharp slowdown in economic growth and a crisis in living standards in the UK, such measures force them to get rid of the British pound, relying on the US dollar as a safe-haven asset. High U.S. rates are also attracting investors, increasing demand for the U.S. dollar. The latest COT report indicated that long non-commercial positions decreased by 11,602 to 41,129, while short non-commercial positions rose by 6,052 to 109,215, which led to an increase in the negative value of the non-commercial net position to the level of - 68,086 versus -50,423. The weekly closing price collapsed from 1.1504 against 1.1526.
Indicator signals:
Trading is below the 30 and 50-day moving averages, indicating a continuation of the bear market.
Moving averages
Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
In case of growth, the upper border of the indicator around 1.1350 will act as resistance.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in 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 short and long positions of non-commercial traders.
