21.02.202409:32 Forex Analysis & Reviews: GBP/USD trading plan for European session on February 21, 2024. COT report and overview of yesterday's trades. The pound rose after Bailey's statements

Yesterday, the pair formed just one entry signal. Now let's look at the 5-minute chart and try to figure out what actually happened. In my morning forecast, I indicated the level of 1.2599 and planned to make decisions on entering the market from there. A rise and breakout of 1.2599 took place without a suitable downward retest, so I refused to buy. In the afternoon, a false breakout at 1.2660 produced an excellent sell signal, sending the pair down by more than 50 pips.

For long positions on GBP/USD:

Yesterday, Bank of England Governor Andrew Bailey's speech was quite mild, but surprisingly, the pound traded positively after his speech, although it did not last long. The mention of a possible rate cut before inflation returns to normal in order to save the economy was perceived positively by buyers of risky assets, which strengthened the GBP/USD pair. Today, the UK will release reports on public sector borrowing and the CBI Industrial Trends Orders, but apart from that, there is nothing else. We believe that these reports are not capable of provoking a significant market reaction, so the only thing left is to wait for the speech of BoE policymaker Swati Dhingra.

In case the pressure on the pair returns during the European session, I plan to buy during a decline near 1.2616. This is in line with the bullish moving averages. A false breakout of this level would serve as a buy signal, aiming for a recovery towards 1.2664. A breakout and consolidation above this range will strengthen the demand for the pound and open the way to 1.2690, which will strengthen the buyers' position in developing a new bullish trend. The ultimate target will be the 1.2730 high where I intend to take profit. In a scenario where GBP/USD falls and there are no buyers at 1.2616, we might see another pound sell-off. In this case, only a false breakout near the next support at 1.2588 would provide an entry signal. I would immediately go long on a bounce from the 1.2559 low, bearing in mind an intraday correction of 30-35 pips.

For short positions on GBP/USD:

Considering that the pound traded positively, the GBP/USD pair has a good chance of recovering further. Therefore, I am not in a rush to sell. In case GBP/USD attempts to recover in the first half of the day, I plan to sell only after forming a false breakout near the new resistance at 1.2654. This would confirm the presence of big players in the market, creating a sell signal with the purpose of breaking the upward correction and give the bears a chance to move the price down to the area of 1.2616 - support, for which I expect an active struggle. A breakout and a retest from below will deal a blow to the bulls' positions, leading to the removal of stop orders and open the way to 1.2588, where I anticipate big buyers to show up. The next target will be 1.2559, where I plan to take profits. If GBP/USD grows and there are no bears at 1.2654, the bulls will continue the upward correction. In such a case, I will postpone sales until the price performs a false breakout at 1.2690. If there is no downward movement there, I will sell GBP/USD on a bounce right from 1.2730, considering a downward correction of 30-35 pips within the day.

COT report:

In the COT report (Commitment of Traders) for February 13, we find an increase in long positions and a decrease in short ones, which means that market balance is preserved even after a series of fundamental data pointed to the challenges that the Bank of England has to deal with. These challenges include high inflation and the weak UK economy, teetering on the edge of recession. So now we should closely pay attention to the stance of the Bank of England representatives, as a lot depends on this. The latest COT report showed that long non-commercial positions rose by 6,609 to 90,545, while short non-commercial positions decreased by 9,388 to 40,073. As a result, the spread between long and short positions increased by 889.

Indicator signals:

Moving Averages

The instrument is trading above the 30 and 50-day moving averages. It indicates that GBP/USD is likely to rise further.

Please note that the time period and levels of the 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

If GBP/USD falls, the indicator's lower boundary near 1.2595 will serve as support.

Description of indicators:

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

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

• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA with a 12-day period; Slow EMA with a 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 positions opened by non-commercial traders;

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

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