Fundamental analysis

GBP/USD: the plan for the American session on October 25 (analysis of morning deals). The pound remains within the channel

In my morning forecast, I paid attention to the 1.1274 level and recommended deciding on entering the market there. Let’s look at the 5-minute chart and figure out what happened. The decline and false breakdown in the area of 1.1274 did not take long to wait, leading to a buy signal and a pound jerk up by more than 60 points. When updating 1.1339, the bears defended this level and gave a sell signal. But the downward movement has so far amounted to only about 25 points. For the second half of the day, the technical picture has not changed, and the strategy itself has not changed.

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To open long positions on GBP/USD, you need the following:

Data on the US consumer confidence index and a speech by Finance Minister Janet Yellen will set the market’s tone in the afternoon. If the report turns out to be worse than economists’ forecasts, the bulls may make every effort to break 1.1339. However, if we draw analogies with yesterday: the pound did not react much to the bad US data, so do not be surprised if the same thing happens today. I advise you to act as in the morning: only another false breakdown at 1.1274 will give a buy signal with a re-exit at 1.1339, without which it will be difficult for buyers of the pound to count on building a bull market. Only after getting above this range will it be possible to talk about the continuation of the upward correction for the pair. A breakdown of 1.1339 in the afternoon, as well as a reverse test from top to bottom, will open the way to a maximum of 1.1403, and there it will be close to the monthly resistance of 1.1488, where it will become more difficult for buyers to control the market. A more distant target will be the 1.1539 area, which will lead to a fairly large capitulation of sellers – I recommend fixing profits there. If GBP/USD falls and there are no buyers at 1.1274, and this level has already been tested more than six times over the past day, the pressure on the pound will return. If this happens, I recommend postponing long positions until 1.1210. I advise you to buy there only on a false breakdown. It is possible to open long positions on GBP/USD immediately for a rebound from 1.1137 or in the minimum of 1.1066 with the aim of correction of 30-35 points within a day.

To open short positions on GBP/USD, you need the following:

In his first public speeches as a leader, Sunak called on his party to unite to solve a “serious economic problem.” Sunak spoke about the recession that is developing in the economy against the background of high double-digit inflation. So far, we have not heard anything new from the prime minister, and the pound reacts positively to the lack of news. Sellers should not release the pair beyond the 1.1339 range, as this will provoke new purchases, allowing the bulls to strengthen their position in the market. In the case of GBP/USD growth, only the formation of a false breakdown at 1.1339 forms a sell signal in the expectation of a return of the bearish trend and a decline to the nearest support of 1.1274, the breakdown of which will take place any minute. A breakout and a reverse test from the bottom up of this range will already give an entry point for sale with the update of the minimum of 1.1210. A more distant target will be the 1.1137 area, where I recommend fixing the profits. With the option of GBP/USD growth and the absence of bears at 1.1339 in the afternoon, the situation will return to the control of buyers, which will lead to the growth of GBP/USD in the weekly maximum of 1.1403. A false breakout at this level forms an entry point into short positions in the expectation of a new downward movement of the pair. If there is no activity, there may be a jump up to the maximum of 1.1488. I advise you to sell GBP/USD immediately for a rebound, counting on the pair’s rebound down by 30-35 points within a day.

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

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Signals of indicators:

Moving Averages

Trading is conducted around 30 and 50-day moving averages, which indicates market equilibrium.

Note: The author considers the period and prices of moving averages on the hourly chart H1 and differ from the general definition of the classic daily moving averages on the daily chart D1.

Bollinger Bands

In the case of growth, the upper limit of the indicator in the area of 1.1345 will act as resistance.

Description of indicators

  • Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. The graph is marked in yellow.
  • Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. The graph is marked in green.
  • MACD indicator (Moving Average Convergence / Divergence – moving average convergence/divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
  • Bollinger Bands (Bollinger Bands). Period 20
  • Non-profit speculative traders, such as individual traders, hedge funds, and large institutions, use the futures market for speculative purposes and to 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.

The material has been provided by InstaForex Company – www.instaforex.com


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