29.12.202107:52 Forex Analysis & Reviews: GBP/USD: trading plan for European session on December 29. Overview of yesterday trading. GBP fails to consolidate at 1.3445

What is needed to open long positions on GBP/USD:

Yesterday, there was only one signal 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 highlighted the level of 1.3445 and recommended taking decisions with this level in focus. Due to the very low volatility of the pair in the first half of the day, it did not approach the nearest resistance level of 1.3445. The pound sterling also did not fall to 1.3417. As a result, there were no entry points. During the US session, bulls pushed the pair higher. It consolidated above 1.3445. After the test of this level, new entry points into long positions appeared. The pair gained 15 pips. Shortly after, bears regained control of the level of 1.3445, pushing the pair to the support level of 1.3417.

Before analyzing the technical indicators for the pound sterling, let's look at what happened in the futures market. The COT reports (Commitment of Traders) for December 21 revealed that there was a decline in both short and long positions. The number of long positions has shrunk much more, which has increased the negative value of the delta. Traders have already priced in the Fed and BoE meetings. However, the pound sterling decreased sharply after a rally fueled by an interest rate hike. Only a week later, and we do not have these data yet, the British currency managed to recoup all the losses and reached the December highs. Therefore, I do not recommend taking the current report seriously as it does not reflect the real situation in the market. If you look at the overall picture, the prospects for the British currency are bright. Traders continue to open long positions on the pound sterling following the Bank of England's decision to raise the benchmark rate. A more aggressive stance of the regulator next year will certainly strengthen the bullish trend for the GBP/USD pair. High inflation remains the main reason why the Bank of England may hike the interest rate again. The US dollar may also gain momentum as the Fed plans to raise the key rate in the spring of next year, which makes the US dollar a more attractive asset. The COT report for December 21 showed that the number of long non-commercial positions fell 20,824 from 29,497, while the number of short non-commercial positions declined to 78,510 from 80,245. This led to an increase in the negative non-commercial net position to -57,686 from -50,748. The weekly closing price has hardly changed: 1.3209 versus 1.3213 a week earlier.

Today, the economic calendar for the UK is uneventful that could affect the direction of the British pound. During the European session, the pair is likely to trade in the sideways channel. Yesterday, bears asserted strength that may undermine the bullish trend at the end of the year. Analysts expect more movements in the US session as the US will unveil a batch of reports. The pound sterling has recently climbed significantly. This is why today bulls need to protect the support level of 1.3417. This level is very important as its breakout may force traders to close positions from the December highs. If this scenario comes true, the British currency is likely to drop considerably. Only the formation of a false breakout at 1.3417 will give a long signal for GBP/USD. As a result, the pair could resume its upward trend and try to test the resistance level of 1.3446 again. A breakout and downward test of this level will give an additional entry point and strengthen a bullish trend. So, the pair may reach the highs of 1.3472 and 1.3506. A more distant target level will be the 1.3560 level where I recommend taking profits. If during the European session, the pound sterling declines and bulls fail to protect 1.3417, it is best to postpone purchases to the level of 1.3389. At this level, large market players hold long positions. Only the formation of a false breakout will give an entry point amid expectations of bullish momentum. It is recommended to open long positions on GBP/USD immediately after a bounce off a lower low of 1.3368 or from 1.3344, bearing in mind a 20-25 pip intraday correction.

What is needed to open short positions on GBP/USD:

Bears managed to push the pair down to the 1.3446 level yesterday, returning the price to yesterday's channel. This is a very strong signal indicating a possible fall in the pound sterling at the end of this year. Bears should protect the 1.3446 level. The formation of a false breakout of this level will form the first entry point into short positions. After that, the pair may decline to 1.3417. This level may become a battle filed for bulls and bears as the future trend will be determined by a fall or rise from it. A breakout of 1.3417 will lead to s drop in stop orders and an upward test. It is sure to increase pressure on the pound sterling. It may nosedive to the next support level of 1.3389 where large market players hold long positions. Only the consolidation and the upward test of 1.3389 will give a new entry point into short positions with the prospect of a decline to 1.3368 and 1.3344. I recommended locking in profits at the indicated levels. If the pair grows during the European session and bears fail to protect 1.3446, I advise you to cannel selling to the resistance level of 1.3472. I also recommended you to open short positions there only in case of a false breakout. It is possible to open short positions on GBP/USD immediately after a drop from the resistance level of 1.3506 or even higher from 1.3560, bearing in mind a 20-25 pip intraday correction.

Signals of technical indicators

Moving averages

GBP/USD is trading slightly above 30- and 50-period moving averages. It means that the bulls are running out of steam.

Remark. The author is analyzing a period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.

Bollinger Bands

A breakout of the lower border at about 1.3417 will escalate pressure on GBP/USD. Alternatively, a breakout of the upper border at about 1.3446 will trigger a new bullish wave of GBP.

Definitions of technical indicators

• Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart.
• Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is displayed as the green line.
• MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal line".
• Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average.
• Non-commercial traders - speculators such as retail traders, hedge funds and large institutions who use the futures market for speculative purposes and meet certain requirements.
• Non-commercial long positions represent the total long open position of non-commercial traders.
• Non-commercial short positions represent the total short open position of non-commercial traders.
• The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.