Fundamental analysis

GBP/USD: plan for the European session on October 28. COT reports. The pound continued to stagnate in one place

Yesterday, several market entry signals were formed. Let’s take a look at the 5-minute chart and figure out what happened. I paid attention to the 1.1562 level in my morning forecast and advised making decisions on entering the market there. The pound fell to the immediate support area of 1.1562 and as expected, the bulls started to be more active there to buy out the low. This led to a signal to open long positions, but from the first time there was no strong upward movement. In the afternoon, after forming a similar buy signal, the pound went up more than 80 points.


When to go long on GBP/USD:

Surprisingly, the pound ignored both the decision of the European Central Bank, which is fine, and the US GDP growth, which turned out to be better than economists’ forecasts. Does this mean that there is a serious static buyer in the GBP/USD – most likely yes. Today there are no statistics on the UK, so it will be possible to rely only on reports on the US economy. But given how traders react to them, I expect the pair to remain in the horizontal channel, provided that the bulls show themselves in the immediate support area of 1.1538 and keep trading above this range. Forming a false breakout there will give a buy signal in order to restore and update the resistance of 1.1601, formed on the basis of yesterday. A breakthrough and a downward test of this range may change the situation dramatically, allowing bulls to build a more powerful upward trend with the prospect of updating 1.1670 and further exit to 1.1719. The farthest target of the bulls will be 1.1757, where I recommend taking profits.

If the bulls fail to cope with their tasks and miss 1.1538, the pressure on the pair will quickly return, and the downward correction will continue at the end of the week. In this case, I advise you to buy only on a false breakout in the area of 1.1476. I recommend opening long positions on GBP/USD immediately for a rebound from 1.1432, or even lower – around 1.1392 with the goal of correcting 30-35 points within the day.

When to go short on GBP/USD:

The bears are trying to do something, but it comes out pretty bad and slow. Yes, there is still a chance for the pound to break through 1.1538 and for a bigger downward move later in the week, and good US data could help. Despite this, the best scenario for opening short positions in the current conditions would be a false breakout in the new resistance area of 1.1601, just below which the moving averages go, playing on the bears’ side and limiting the pair’s growth potential. This will make it possible for us to get a good entry point with the goal of moving to support 1.1532. A breakthrough and test from the bottom up of this range would be a good set-up for a return to the 1.1476 low. The farthest target will be the area of 1.1432, where I recommend taking profits.

In case GBP/USD grows and the bears are not active at 1.1601, the bulls will continue to enter the market, counting on the continuation of the upward trend. This will push the GBP/USD to the 1.1670 area. Only a false breakout at this level will provide an entry point into shorts with the goal of moving down. If traders are not active there, I advise you to sell GBP/USD immediately for a rebound from 1.1719, counting on the pair’s rebound down by 30-35 points within the day.


COT report:

The Commitment of Traders (COT) report for October 18 logged a sharp reduction in long positions and an increase in shorts. The resignation of British Prime Minister Liz Truss and the appointment of Rishi Sunak to her post had a positive effect on the British pound, but rising inflation in the UK did not allow investors to fully believe that the economy would be able to endure all that awaits it in the near future: an increase in the cost of living crisis, an increase in the energy crisis and high interest rates. Also, there was a sharp decline in retail sales most recently in the UK – the main engine of economic growth, which once again confirms the fact that households have serious problems due to high prices, discouraging any desire to spend extra money. Until the UK authorities deal with the problems and find a way out of the current situation, the pressure on the pound will continue. The latest COT report indicated that long non-commercial positions decreased by 8,651 to 40,328, while short non-commercial positions rose by 3,390 to 91,539, resulting in a slight increase in the negative non-commercial net position to -51,211 versus -39,170. The weekly closing price increased and amounted to 1.1332 versus 1.1036.


Indicator signals:

Trading is below the 30 and 50-day moving averages, which indicates the possibility of a downward correction.

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 a decline, the lower border of the indicator around 1.1538 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 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.

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