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GBP/USD: plan for the European session on January 18. COT reports. The pound may rise after the data on the labor market

Relevance up to 06:00 2022-01-19 UTC+00

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

Yesterday, only one signal was formed to enter the market in the afternoon. Let’s look at the 5-minute chart and figure out the entry points. In my morning forecast, I paid attention to several levels, but due to excessively low volatility, we never managed to get to them. Due to the absence of tests 1.3653 and 1.3696 in the first half of the day, no entry points were formed into the market. During the American session, the sellers of the pound still achieved a breakdown and a bottom-up test of the 1.3653 level, but the sell signal was realized only during today’s Asian session, which brought about 30 points of profit.

Before analyzing the technical picture of the pound, let’s look at what happened in the futures market. The Commitment of Traders (COT) reports for January 11 revealed an increase in long positions and a reduction in short positions – which indicates the continued attractiveness of the pound after the Bank of England raised interest rates at the end of last year. If you look at the overall picture, the prospects for the British pound look pretty good, and the observed downward correction makes it more attractive. The Bank of England’s decisions continue to support buyers of risky assets in the expectation that the regulator will continue to raise interest rates this year, which will push the pound even higher. High inflation remains the main reason why the Bank of England will continue to tighten monetary policy. Last week, Federal Reserve Chairman Jerome Powell said that he would not shape events and rush to raise interest rates, especially in view of the sharp decline in retail sales in December last year, which should cool down inflationary pressure a little. This led to a decrease in demand for the US dollar, which will allow buyers of the pound to continue building an uptrend. The COT report for January 11 indicated that long non-commercial positions increased from the level of 25,980 to the level of 30,506, while short non-commercial positions decreased from the level of 65,151 to the level of 59,672. This led to a change in the negative non-commercial net position from -39,171 to -29,166. The weekly closing price rose from 1.3482 to 13579.

Today we have a number of data on the UK labor market, which may have a positive impact on the direction of the British pound, which is showing a good downward correction. The primary task of buyers today is to protect the support of 1.3612, to which the bears persistently push the pair after the Asian sell-off. This level is very important, as its breakdown can force traders to take profits, which will lead to the formation of a larger fall in the pound in the short term. Much will depend on the data on the unemployment rate, which is forecast unchanged in November compared to last month. Only the formation of a false breakdown at 1.3612 will give a signal to buy GBP/USD against a downward correction with the prospect of resuming the bull market aimed at breaking through the resistance of 1.3656, above which the moving averages that limit the upward potential of the pair pass. The breakdown and test of this level from top to bottom will form an additional entry point and strengthen the position of buyers with continued growth and updating of the highs: 1.3696 and 1.3739. A more distant target will be the 1.3790 area, where I recommend fixing profits. In the scenario of a decline in the pound during the European session and a lack of activity at 1.3612, it is best to postpone purchases to the level of 1.3566. Only the formation of a false breakdown there will give an entry point in the expectation of maintaining bullish momentum. You can buy GBP/USD immediately on a rebound from 1.3532, or even lower – from a low like 1.3496, counting on a correction of 20-25 points within a day.

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

Bears are still in control of the market. The primary task of sellers remains the protection of the 1.3656 range, which was repulsed yesterday during the American session. A sharp increase in the number of applications for unemployment benefits in the UK in December this year and the formation of a false breakdown at the level of 1.3656 – all this will give an entry point into short positions, followed by a decline in the pair to the area of 1.3612. We will have to fight hard for this level, as the bulls clearly do not intend to let go of the uptrend. A breakdown of 1.3612 will lead to the demolition of a number of buyers’ stop orders, and a reverse test from the bottom up will increase pressure on the pound and dump it to the next support of 1.3566, where there is a large buyer counting on new figures. Only the consolidation and the reverse test of 1.3566 from the bottom up will give a new entry point into short positions with the prospect of a decline in GBP/USD by 1.3532 and 1.3496, where I recommend fixing profits. If the pair grows during the European session and sellers are weak at 1.3656, it is best to postpone selling to a larger resistance of 1.3696. I also advise you to open short positions there only in case of a false breakdown. You can sell GBP/USD immediately for a rebound from the maximum of 1.3739, or even higher – from the area of 1.3790, counting on the pair’s rebound down by 20-25 points inside the day.

Indicator signals:

Trading is conducted below 30 and 50 moving averages, which indicates a continuation of the downward correction in the pair.

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

Crossing the lower border of the indicator in the area of 1.3630 will increase pressure on the pair. Crossing the upper border in the area of 1.3660 will lead to a new wave of growth of the pound.

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.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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