In my morning forecast, I highlighted the 1.2427 level as a key point for making market entry decisions. Let's analyze the 5-minute chart to see what happened. GBP/USD tested 1.2427, forming a false breakout, which provided a good selling opportunity. This triggered a decline of over 25 points, confirming the validity of the setup. Given the recent price action, I have revised the technical outlook for the second half of the day.

Trading Plan for Long Positions on GBP/USD

While the pound does not face significant fundamental issues, the presence of sellers above 1.2433 is clear. Bulls previously attempted to hold this level, but sellers have now taken control.

Given upcoming U.S. economic data, the downward pressure on GBP/USD may persist, limiting bullish momentum. Only very weak U.S. Core PCE Price Index data and dovish rhetoric from FOMC member Michelle Bowman could justify buying GBP/USD.

A false breakout at 1.2380 will provide the best buying opportunity, targeting 1.2433—a level where sellers are likely to reappear. A breakout and retest of 1.2433 from above will confirm a bullish entry, aiming for 1.2472, reinforcing the bullish trend. The final bullish target is 1.2519, where I will lock in profits.

If GBP/USD falls below 1.2380 and bulls fail to show activity, bearish pressure will increase. In this case, only a false breakout at 1.2342 will provide a buying opportunity. Alternatively, I will consider buying from 1.2301 on a direct rebound, targeting a 30–35 point intraday correction.

Trading Plan for Short Positions on GBP/USD

Sellers are attempting to regain control, but this will depend on strong U.S. data.

A false breakout at 1.2433 (similar to the morning setup) will confirm a sell signal, targeting 1.2380. A break below 1.2380, followed by a retest from below, will validate a short position, aiming for 1.2342. The final bearish target is 1.2301, where I will take profit.

If GBP/USD rises in the afternoon and sellers fail to defend 1.2433, the pair may return to sideways trading. In this case, I will wait for a test of 1.2472 before considering short positions. I will only sell at 1.2472 after a failed breakout. If there is no downward movement at 1.2472, I will look for a short at 1.2519, targeting a 30–35 point correction.

Commitments of Traders (COT) Report:

The COT report from January 21 showed an increase in short positions and a reduction in long positions, confirming that bears are gaining control. Weak U.K. economic data, combined with rising inflation, puts the Bank of England in a difficult position. The BoE is expected to cut rates further at its next meeting, and this is already factored into GBP pricing. However, the dollar's strength remains a key factor, driven by decisions from the new Trump administration.

Key COT figures:

• Long non-commercial positions decreased by 4,861 to 75,696.
• Short non-commercial positions increased by 3,834 to 83,953.
• The gap between long and short positions narrowed by 1,018, reinforcing the bearish sentiment.

Indicator Signals

Moving Averages

GBP/USD is trading near the 30- and 50-day moving averages, signaling market uncertainty.

Note: The moving averages are evaluated on the hourly (H1) chart, which differs from traditional daily (D1) moving average definitions.

Bollinger Bands

If GBP/USD declines further, the lower Bollinger Band at 1.2400 will act as support.

Indicator Descriptions

• Moving Average (MA): Identifies the current trend by smoothing volatility and market noise.
  • 50-period MA (yellow on chart)
  • 30-period MA (green on chart)
• MACD (Moving Average Convergence/Divergence):
  • Fast EMA: 12-period
  • Slow EMA: 26-period
  • Signal Line SMA: 9-period
• Bollinger Bands: 20-period
• Non-commercial traders: Speculative traders, including individual traders, hedge funds, and large institutions, who use the futures market for speculation.
• Non-commercial long positions: The total long contracts held by speculative traders.
• Non-commercial short positions: The total short contracts held by speculative traders.
• Net non-commercial position: The difference between short and long positions held by speculative traders.