Yesterday, there were quite a few excellent entry points. Now, let's look at the 5-minute chart and figure out what actually happened. Earlier, I asked you to pay attention to the level of 1.2232 to decide when to enter the market. The breakout occurred without a reverse test, so there was no buy signal. False breakout and long positions at 1.2278 did not bring the desired result. The breakdown and reverse test of 1.2278 gave a sell signal, after which the pound sank by more than 40 pips. By the end of the day, after the Federal Reserve announced its decision, a false breakout of 1.2329 gave another sell signal. The pound fell by around 50 pips.
Conditions for opening long positions on GBP/USD:
Today, the Bank of England will announce its interest rate decision. With UK inflation rising and remaining above 10.0%, it is likely that the central bank will raise rates by 0.25%, saying that it will continue to keep monetary policy tight. There is nothing else to do, as allowing high inflation to take root in the economy is far worse than causing a crisis in the banking sector, which can be helped at any time with liquidity and credit. And although I bet that the pair would rise further, in case the pound falls, I advise you to open long positions near the support level of 1.2279 and only after a false breakout. This could create new entry points into long positions with a prospect of a jump to 1.2330. If the pair consolidates there and undertakes a downward retest of 1.2330, GBP/USD could reach a new monthly high of 1.2388. At this level, the bulls will again face serious problems. Following a breakout of this level, the pair could touch 1.2450 where I recommended locking in profits. If the bulls fail to push the pair to 1.2279, which is in line with the bullish moving averages, the pressure on the pound will return. In this case, I would advise you not to rush into purchases and open long positions only near the support level of 1.2227 and only after a false breakout. You could buy GBP/USD at a bounce from a low of 1.2181, keeping in mind an upward intraday correction of 30-35 pips.
Conditions for opening short positions on GBP/USD:
The bears have a chance to regain the upper hand, but for that they need the BoE to signal a return to a soft monetary policy, which is unlikely. They need to take control of the resistance level at 1.2330. A false breakout of this level will give an excellent signal to open short positions against the trend before the BoE announces its decision. GBP/USD could slide to the nearest support level at 1.2279. At this level, bulls are likely to try to enter the market. Only a breakout and an upward retest of 1.2279 will increase the pressure on the pound, providing new entry points into short positions with a drop to 1.2227. A more distant target will be a low of 1.2181 where I recommend locking in profits. If GBP/USD rises and bears show no energy at 1.2330, which is likely, the pound sterling may rush to the new monthly high at 1.2388. Only a false breakout of this level will give an entry point into short positions. If there is no downward movement there, you could sell GBP/USD at a bounce from a high of 1.2450, keeping in mind a downward intraday correction of 30-35 pips.
The COT report for March 7 logged a rise in both long and short positions. However, this data is not relevant as the CFTC is still recovering after a cyber-attack. All that's left is to wait for fresh reports. This week, the Fed and the Bank of England will hold monetary policy meetings and make a decision on interest rates. The BoE is expected to stick to a hawkish stance due to persistent inflation. If the Fed gets dovish and the BoE does not, we will see GBP/USD reaching a new monthly high. According to the latest COT report, long non-commercial positions increased by 1,227 to 66,513. Short non-commercial positions rose by 7,549 to 49,111. The non-commercial net position came in at -17,141 versus -21,416. The weekly closing price fell to 1.1830 from 1.2112.
Signals of indicators:
Trading is performed above the 30- and 50-day moving averages, which indicates bullish sentiment.
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.
In case of a decline, the lower limit of the indicator located around 1.2227 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.