23.02.202208:00 Forex Analysis & Reviews: GBP/USD trading plan for European session on February 23, 2022. COT report (analysis of yesterday's trades). Traders buy GBP on fall to 1.3540

For long positions on GBP/USD:

Yesterday, a fairly large number of entry signals were formed. Let us take a look at the 5-minute chart and figure out where you could have entered the market. In my morning review, I paid attention to the level of 1.3556 and recommended entering the market from there. As a result of a sharp breakout of the 1.3580 support level and an immediate sell-off of the pound, the price tested a low of 1.3556. This is where I recommended opening long positions right after a rebound. Later, the pair returned to 1.3580 and also reached the daily highs in the area of 1.3595. In the afternoon, bears managed to break through 1.3572. Testing this level from the bottom to top led to the formation of a sell signal. As a result, the pair dropped to the next support level of 1.3542, creating an opportunity to earn around 30 pips. Several false breakouts at this level became good signals to buy the pound. Overall, traders could have gained 60 pips.

Today, the Bank of England's Monetary Policy Committee will hold a meeting. The aggressive stance of the UK regulator has long been obvious to everyone. Yet, it is still a question what the BoE is going to do amid current geopolitical tensions and reduced inflationary pressures that were reported last week. At the moment, it is clear that bulls will keep fighting for the nearest resistance at 1.3603 where they failed to settle yesterday. However, a more important task for bulls in the European session will be to protect the support of 1.3568 where the pound may slide during the speech of BoE Governor Andrew Bailey. It is possible to go long from 1.3568 only after a false breakout, which will lead to a new round of growth towards the resistance area of 1.3603. A breakout and a test of this range from top to bottom, just like yesterday, will form an additional signal to buy the pair. It may then recover to the February high of 1.3637. A more distant target will be the area of 1.3659 where I recommend taking profit. If GBP/USD declines during the European session and bullish activity decreases at 1.3568, nothing bad will happen. Lately, a downward correction has been seen by big market players as a great opportunity to buy at lower prices. In this case, the nearest support will be the area of 1.3539, which proved to be a strong level yesterday. A false breakout of this level will create an entry point into long positions. However, traders need to be careful here. Any escalation of tensions between Ukraine and Russia can send the pound sharply lower. You can buy GBP/USD immediately on a rebound from 1.3521, or even lower at 1.3505, considering a correction of 20-25 pips within the day.

For short positions on GBP/USD:

The pound/dollar bears may lose control of the market, which is why it is so important for them to protect the resistance at 1.3603. High sellers' activity at this level in the first half of the day, together with a false breakout that may follow the speeches of the Bank of England's Monetary Policy Committee members Silvana Tenreyro and Jonathan Haskel, will create a good signal to sell the pound, especially in these uncertain conditions. The immediate target for bears will be the support level of 1.3568 formed yesterday. A breakout and a test of 1.3568 will increase pressure on the pair, providing an additional entry point for going short with a downward target at the low of 1.3539. A re-test of this level may seriously limit the bullish trend. This scenario was discussed yesterday when the pair surged in the American session. A more distant target will be the area of 1.3521 where I recommend taking profit. If GBP/USD rises during the European session and bears' activity decreases at 1.3603, it is better to wait with selling the pair until it reaches this month's high of 1.3637. I will also advise you to open short positions in case of a false breakout. You can sell GBP/USD immediately on a rebound from 1.3659, considering a downward pullback of 20-25 pips within the day.

COT report

The COT report (Commitment of Traders) for February 15 revealed a sharp increase in long positions and a reduction in short ones. This resulted in the delta returning its positive value. On the one hand, the outcome of the Bank of England's meeting did not surprise the market. At the same time, the hints of a more aggressive stance on monetary policy are fueling the appetite for risk. If it were not for the ongoing conflict between Russia and Ukraine, the pound could have developed a stronger recovery. In the meantime, it is not clear whether demand for risk assets will stay the same. Given that the UK economy is now going through hard times and may face a slowdown at any moment, raising the rates could harm its recovery in the near future. However, the recent upbeat data on retail sales showing unexpected growth brings optimism to the market. The fact that inflation remained at the same levels in January and hardly changed on a yearly basis may convince the Bank of England to slow down the pace of policy tightening. The conflict between Russia and Ukraine, as well as Fed's rate hike in March this year, will continue to weigh on the pound bulls. Some traders expect the US central bank to be more aggressive and raise the rate by 0.5% instead of 0.25%. This will be a bullish factor for the US dollar. The COT report for February 15 indicated that long positions of the non-commercial group of traders rose from 44,709 to 50,151, while short positions decreased from 53,254 to 47,914. As a result, the non-commercial net position increased from -8,545 to 2,247. The weekly closing price remained unchanged and stood at 1.3532 against 1.3537.

Indicator signals:

Moving Averages

Trading below the 30- and 50-day moving averages indicates market uncertainty.

Please note the time period and prices of moving averages are analyzed only for the H1 chart which differs from the general definition of the classic daily moving averages on the D1 chart.

Bollinger Bands

In case of a decline, the lower band at 1.3545 will serve as support. A breakout of the upper band at 1.3610 will initiate a new round of growth for he pound.

Description of indicators:

• A moving average determines the current trend by smoothing volatility and noise. 50-day period; marked in yellow on the chart;

• A moving average determines the current trend by smoothing volatility and noise. 30-day period; marked in green on the chart;

• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA, 12-day period; Slow EMA, 26-day period. SMA with a 9-day period;

• Bollinger Bands: 20-day period;

• Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements;

• Long non-commercial positions represent the total number of long position opened by non-commercial traders;

• Short non-commercial positions represent the total number of short position opened by non-commercial traders;

• The total non-commercial net position is the difference between short and long positions of non-commercial traders.