08.10.202012:21 Forex Analysis & Reviews: GBP/USD: Plan for American session on October 8 (overview of morning trade). Bears fail again to conquer 1.2929. Andrew Bailey ready to expand asset-buying program.

In the morning review, I suggested buying the pair after a breakout and fixation above resistance of 1.2929. This is exactly what has happened. Now let's look at the 5-minute chart. It is clear that the bulls are pushing ahead to break 1.2929 testing this level from top to bottom. This creates a nice entry point for long positions. Nevertheless, the bulls have not been able to ensure this sharp uptrend. The price move of 20 pips under such intraday volatility is not the best result. The bears have already pushed the pair to the level below 1.2929. Now they are holding the upper hand.

What is needed to open long positions on GBP/USD

In case GBP/USD extends its decline in the second half of the trading day, the important task for the sterling bulls will be to defend support at 1.2863 which was challenged yesterday. However, if a fake breakout takes shape there, this will be a buy signal for GBP/USD. In case the bulls are sluggish, it would be better to cancel long positions until the price hits a lower low than 1.2807. There you will be able to buy the pair bearing in mind a 30-40 pips intraday correction. Another important task for the bulls is the control of resistance at 1.2929. The pair is trading mainly around this level today. Fixation above 1.2929 will invite the buyers back to the market, thus forming an extra entry point for long positions aiming to climb above a one-week high of 1.3001 where I recommend profit taking.

What is needed to open short positions on GBP/USD

Today the speech of Bank of England Governor pushed the sterling down in the first half of the trading day. Andrew Bailey again reiterated that the regulator is set to respond immediately with extra fiscal stimulus measures in case of the second coronavirus wave in the UK.

The sterling sellers set a simple task for the American session. They need to create a good entry point for short positions from the level of 1.2929. This level has to be tested from bottom to top. If this happens in the second half of the trading day, the door will be open for selling with the view of the pair's retracement to support of 1.2863. A breakout and a test of this area from bottom to top will make another entry point for short positions. In this case, the nearest bearish target will be 1.2807. If broken, this will increase pressure on the sterling that will open the door to a low of 1.2749 where I recommend profit taking. If GBP/USD grows again to the level above resistance of 1.2929, it would be better to cancel short deals until the price makes a higher high than 1.3001 bearing in mind a 30-40 pips intraday correction.

For your reference, the Commitment of Traders report (COT) from September 29 recorded a sharp increase of short positions and contraction of long positions that impacted on the net positions balance, leading to its bigger negative value. This confirms that traders are poised to expand short deals, no matter how high the pair climbs because they are puzzled by the Brexit uncertainty and unclear prospects of the economic recovery. I foresee growing pressure on the sterling while the second coronavirus wave is spreading across the country. The number of short non-commercial positions on GBP/USD grew to 51,961 from 40,523. At the same time, the number of long non-commercial positions declined to 39,216 from 43,487 a week earlier. As a result, the balance of non-commercial net positions turned negative to -12,475 against 2,964 in the previous week. This indicates that large sellers are gradually regaining control over the market.

Signals of technical indicators

Moving averages

The pair is trading below 30- and 50-period moving averages. It indicates fierce standoff between buyers and sellers.

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

EUR growth will be capped by the upper level of the indicator at near 1.1835. In case EUR declines, the lower border of the indicator at near 1.1755 will act as support.

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.