21.12.202108:25 Forex Analysis & Reviews: GBP/USD forecast for December 21. COT report. Sterling likely to resume bearish trend

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

Yesterday, several strong signals to enter the market were formed. Let's take a look at the 5-minute chart and consider the entry points. In my morning forecast, I paid attention to the levels of 1.3205 and 1.3173 and recommended focusing on them while making decisions on opening positions. Buyers' active protection of the support level at 1.3205 in the first half of the day created a strong buy signal. However, contrary to all expectations, the GBP/USD pair fell below that level, thus sliding to the area of 1.3173. A false breakout at that level provided traders with another entry point into long positions, which turned out to be more successful. The pound's bullish run was limited by the 1.3239 mark, which brought about 65 pips in profit. The market failed to create an additional buy signal after breaking through the resistance level of 1.3205, since there was no reverse test from top to bottom. However, a false breakout made it possible to open short positions from the level of 1.3239. Thus, the pair went down by about 35 pips. Now let's consider the entry points for the euro.

Before analysing the dynamics of the pound sterling from a technical point of view, let's consider the situation in the futures market. The COT report (Commitment of Traders) for December 14 recorded a reduction in both short and long positions. Considering that long positions nearly halved, this led to major changes in the negative delta. At the same time, it should be noted that this data does not include the outcome of the meetings of the US Federal Reserve and the Bank of England. As a whole, the outlook for the British pound is rather gloomy. Following the Bank of England's decision to raise interest rates, the pair rallied. However, the very next day, it faced a sell-off. As a result, many market participants hoping for the end of the bearish trend were out of the market. The US dollar will most likely enjoy high demand amid uncertainty over the new Omicron coronavirus strain, which is spreading at a fairly rapid pace, scaring off market participants from active actions. No one wants to buy an overbought dollar. At the same time, a weak pound is not attractive to investors. Until the situation with the new coronavirus wave returns to normal, the British pound will hardly gain strong upside momentum. However, high inflation remains the main reason why the Bank of England will continue to raise interest rates next year. This fact is likely to support the pound sterling. The COT report released on December 14 indicated that long non-commercial positions declined to 29,497 from 48,950, while short non-commercial positions dropped to 80,245 from 87,227. This resulted in an increase in the negative non-commercial net position from 38,277 to -50 748. The weekly closing price dipped to 1.3213 from 1.3262.

Today's macroeconomic calendar includes a number of releases from the UK that may affect the dynamics of the British pound. The primary task of bulls today will be to protect and form a false breakout in the 1.3200 area. Only upbeat data on the Confederation of British Industry's retail sales for December will lead to a false breakout at 1.3200. In this case, the pair's downside momentum may fizzle out and the British pound will have a chance of rising to the level of 1.3239. This is the area of moving averages that support sellers. Besides, bulls will aim to push the price up so that it could break through and test the level of 1.3239. If the price is able to rise above this range, the way to the highs of 1.3271 and 1.3301 will open. If the price tests the 1.3271 mark from top to bottom, an additional entry point into long positions will be created. In this case, the pair will most likely advance to 1.3301 and 1.3336, where I recommend locking in profits. In the event of the British pound's decline during the European session and the lack of trading activity at 1.3200, buyers will suffer losses. Therefore, only a false breakout near the low of 1.3173 will provide traders with a buy signal, thus enabling the pair to continue trading in the sideways channel. Long positions on GBP/USD can be considered on a rebound around 1.3111, counting on an intraday correction of 20-25 pips.

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

Bears are still taking the lead in the market. However, yesterday, bulls tried to regain control over the quotes at 1.3175. This indicates that there are major players at this level. It is difficult to say for sure in which direction the market will move further. The reason is that after a sharp rise in the pound and an equally sharp fall, there will hardly be many traders willing to do something to build a certain trend of the pair. One thing is clear that bears should not let the British pound rise above 1.3239 as this will lead to the pair's stronger recovery. Only a false breakout at 1.3239 will create a sell signal. In this case, the pair will most likely slide to the 1.3200 area. If the price breaks through 1.3200, the pound sterling will come under stronger pressure and plunge to the major support level of 1.3173. A reverse test of 1.3173 from the bottom to top will create a good sell signal and the pound will probably drop to 1.3111. The lows of 1.3070 and 1.3034 will act as the next targets. If the price hits them, this will make an end to the bull market. In case the pair gains value during the European session and the sellers' activity is weak at 1.3239, it would be a wise decision to refrain from going short until the price reaches the resistance level of 1.3271. Besides, I recommend opening short positions only in case of a false breakout. Short positions on GBP/USD can be considered on a rebound from the resistance level of 1.3301 or from a new high in the area of 1.3336, counting on an intraday downward correction of 20-25 pips.

Indicator signals:

Moving averages

The GBP/USD pair is trading below the 30- and 50-day moving averages, which indicates that bears are still taking the lead.

Note: The period and prices of moving averages are considered by the author on the H1 chart and differs from the general definition of the classic daily moving averages on the D1 chart.

Bollinger Bands

A breakout of the lower boundary of the indicator in the area of 1.3185 will increase pressure on the pair. A breakout of the upper boundary in the 1.3225 area will lead to a new wave of growth in the British pound.

Description of indicators

• Moving average (determines the current trend by smoothing volatility and noise). Period 50. Marked in yellow on the chart.
• Moving average (determines the current trend by smoothing volatility and noise). Period 30. Marked in green on the chart.
• MACD indicator (Moving Average Convergence/Divergence). The 12- and 26-period EMAs. The 9-period SMA.
• Bollinger Bands. Period 20
• Non-commercial traders are speculators, including individual traders, hedge funds, and large institutions, using the futures market for speculative purposes and meeting certain requirements.
• Non-commercial long positions refer to the total long open position held by non-commercial traders.
• Non-commercial short positions refer to the total short open position held by non-commercial traders.
• The total non-commercial net position is the difference between short and long positions held by non-commercial traders.