A few entry signals were generated yesterday. Let's take a look at the M5 chart to get a picture of what happened. In the first half of the day, I focused on the 1.2312 level and considered entering the market there. The pair's plunge in the European session resulted in a false breakout through 1.2312. However, after a 20 pips increase, large traders still showed signs of no return. In the second half of the day, a breakout with a buy signal repeated. However, no surge in the price followed.
When to open long positions on GBP/USD:
Today, the UK will see the release of the manufacturing PMI for January. However, those figures will be of little importance ahead of the FOMC meeting. Therefore, I expect the pair to move slightly up in the sideways channel. With the Bank of England's aggressive rhetoric, the pound is likely to extend growth against the greenback. If the UK's manufacturing PMI comes in disappointing and sparks a negative reaction in the market, a false breakout through 1.2284 may lead to another surge to the 1.2343 mark. In fact, the pair is currently trading near this level. The moving averages limiting the pair's growth potential are also plotted there. Therefore, it will be challenging for the bulls to push the price to the target. Consolidation and a downside retest of this range may drive the price to the 1.2390 high. In the case of the dovish Fed, the pair may go above the range, targeting 1.2444 where I am going to lock in profits. If the bulls fail and lose grip on the 1.2284 level even before the FOMC meeting, GBP/USD will feel an increase in pressure, and a correction will occur. Therefore, long positions could be opened after a false breakout through the 1.2237 low only. It will also become possible to buy GBP/USD on a rebound from 1.2172, allowing a correction of 30 to 35 pips intraday.
When to open short positions on GBP/USD:
The bears attempted to extend the corrective move yesterday. They almost succeeded. However, US consumer confidence data spoiled everything and limited the pair's downside potential. The fact that GBP/USD is now trading near the moving averages indicates market uncertainty ahead of the meetings of the Fed and the BoE. The bears should protect resistance at 1.2336. The barrier is in line with the moving averages. If the price skyrockets in the first half of the day, a false breakout through 1.2336 will generate a sell signal, targeting support at 1.2284. A breakout and a retest of the mark to the upside will produce a sell signal with the target at 1.2337. A new downtrend will begin if the price tests this level. The most distant target stands at 1.2172 where I am going to lock in profits. If GBP/USD goes up and there is no bullish activity at 1.2336, the bulls will regain control over the market. A false breakout through 1.2390 will create a sell entry point. In such a case, we may see a bear continuation. If there is no trading activity there as well, I am going to sell GBP/USD on a rebound from the 1.2444 high, allowing a bearish correction of 30 to 35 pips intraday.
Commitments of Traders:
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. Nevertheless, all eyes are now on the upcoming meetings of the US Fed and the Bank of England. The American regulator is expected to adopt a less aggressive stance on monetary policy. Meanwhile, its British counterpart is likely to stay hawkish and raise the interest rate by 0.5%. In this light, the pound sterling may strengthen unless something extraordinary happens. 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.
Indicator signals:
Moving averages
Trading is carried out near the 30-day and 50-day moving averages, indicating market uncertainty.
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
Resistance is seen at 1.2336, in line with the upper band. Support stands at 1.2300, in line with the lower 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.
- Non-commercial short 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.
