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FX.co ★ GBP/USD: plan for the European session on January 27. COT reports. The pound is aiming for another low at the bottom of the 34th figure

GBP/USD: plan for the European session on January 27. COT reports. The pound is aiming for another low at the bottom of the 34th figure

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

Yesterday was a fairly calm day and there were no signals to enter the market before the Federal Reserve meeting. Let's take a look at the 5-minute chart and figure out what happened. In my morning forecast, I paid attention to several levels and advised you to make decisions on entering the market from them. Very low volatility and the lack of fundamental statistics for the UK - all this led to GBP/USD trading in a narrow horizontal channel of 20 points. The situation persisted in the afternoon. And even despite a small surge in volume, there were no signals to enter the market.

GBP/USD: plan for the European session on January 27. COT reports. The pound is aiming for another low at the bottom of the 34th figure

Traders did not hear anything new following the results of the Fed meeting. The US central bank intends to start raising interest rates in March, and it will do this gradually, but depending on the situation in the economy. As for the reduction of the Fed's balance sheet, as soon as the rates are raised, no specific dates were indicated. In general, nothing new, but it didn't really help the bulls on the pound. Today we have quite important fundamental statistics on the US economy coming out. We are talking about GDP data for the fourth quarter of this year, which suggests good market volatility, which has been lacking so much lately.

Today's important task is to protect the support of 1.3409, to which the pair is moving at the time of writing. Given that the market is bearish, it is unlikely that anything will prevent us from testing this range today. Therefore, it is so important to form a false breakout at 1.3409, which creates the first entry point into long positions against the trend. An equally important task will be to return to 1.3452, where, in my opinion, more bears are concentrated. Only a breakthrough and a test of this level from top to bottom, along with strong retail sales data according to the Confederation of British Industry, will provide an additional entry point into long positions in order to return to 1.3485, where the moving averages are playing on the bears' side. A more difficult task will be the test of the 1.3523 area, from which the pound showed an active fall yesterday. I recommend taking profits there.

In case GBP/USD falls during the European session and a lack of activity at 1.3409, and judging by the way bulls behave in the market, most likely it will be so - it is better not to rush with long positions on risky assets. I advise you to wait for the test of the next major level of 1.3368 and forming a false breakout there will provide an entry point to long positions. You can buy the pound immediately on a rebound from 1.3344, or even lower - from a low of 1.3322, counting on a correction of 20-25 points within the day.

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GBP/USD: plan for the European session on January 27. COT reports. The pound is aiming for another low at the bottom of the 34th figure

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

The bears continued the downward trend for the pair yesterday and achieved the renewal of the next local lows. At the moment, the primary task is to protect the level of 1.3452, above which it is impossible to release the pound. There is a fairly large number of stop orders, triggering it will lead to an instant jump of the pound to the upside. Forming a false breakout at 1.3452 creates the first entry point into short positions, followed by a decline to the area of 1.3409, for which it is unlikely that you will have to fight very hard, since there will only be a temporary stop of the downward trend. A breakthrough and a test of 1.3409 from the bottom up will provide an additional entry point into short positions in hopes of a further decline in GBP/USD by 1.3368 and 1.3344, where I recommend taking profits.

If the pair grows during the European session and bears are weak at 1.3452, and you need to understand that, in fact, Fed Chairman Jerome Powell said nothing new yesterday, it is best to postpone short positions until the next major resistance at 1.3485, where the moving averages are playing on the bears' side. I also advise you to open short positions there only in case of a false breakout. You can sell GBP/USD immediately for a rebound from 1.3523, or even higher - from this month's high in the area of 1.3565, counting on the pair's rebound down by 20-25 points within the day.

I recommend for review:

According to the Commitment of Traders (COT) report from January 18, traders increased long positions and cut on short positions. It means that the sterling retains the speculative interest after the Bank of England raised the key policy rate at the end of the last year. Currently, traders have high expectations that the regulator could increase interest rates again by 0.25% at the nearest policy meeting. Such expectations are bullish for the pound sterling.

At the same time, the fundamental picture contains some factors that cap the pound's upside potential. First, soaring inflation that has been raging for almost half a year negates strong employment in the UK. Despite high wages and a decline in the jobless rate, rampant inflation erases households' incomes. Besides, elevated energy prices and costly services make a dent in the people's well-being so that living standards are currently below the ones during the COVID pandemic. By and large, the outlook for the pound is bright. Moreover, the ongoing downward correction makes it more attractive. The Bank of England's intention to continue rate hikes this year will push the pound to new highs.

This week, traders are anticipating the crucial event: the FOMC policy meeting. The policymakers are widely expected to clear up the timeline for monetary tightening. Some analysts assume that the US central bank could decide in favor of raising interest rates at this policy meeting in January without delaying this question until March. The rate-setting committee is likely to announce tapering the Fed's balance sheet.

The COT report from January 18 reads that the number of non-commercial positions rose from 30,506 to 39,760 whereas the number of short non-commercial positions decreased from 59,672 to 40,007. This leads to a change in negative non-commercial net positions from -29,166 to -247. GBP/USD closed at 1.3647, higher than 1.3570 a week ago.

Indicator signals:

Trading is conducted below the 30 and 50 moving averages, which indicates the continuation of the bear market.

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 growth, the upper border of the indicator around 1.3530 will act as resistance. In case of a decrease, the lower border of the indicator around 1.3409 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.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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