In my morning forecast, I highlighted the 1.2277 level and planned to make trading decisions based on it. Let's look at the 5-minute chart and analyze what happened. A decline followed by a false breakout at this level led to a solid buying opportunity for the pound, resulting in a correction of more than 30 points. The technical picture for the second half of the day has been completely revised.

For Opening Long Positions on GBP/USD:

Given the lack of seller activity during European trading, it's evident that the focus has shifted to the U.S. session. UK data was ignored, meaning market direction will now be determined by figures on nonfarm payrolls, unemployment, and average hourly earnings. Only significantly better-than-expected data can trigger new pound sales and dollar purchases. Otherwise, GBP/USD may experience a larger upward correction.

In case of another decline, I expect buyer activity near the new support level of 1.2270, formed after the first half of the day. A false breakout there will create a good buying opportunity, targeting a slight recovery in GBP/USD toward resistance at 1.2319. A breakout and subsequent retest of this range from above after weak U.S. data will provide a new entry point for longs, aiming for 1.2365, where buyers are likely to encounter more significant resistance. The ultimate target will be the 1.2412 area, where I plan to lock in profits.

If GBP/USD declines and there's no bullish activity at 1.2270, the pound could fall further. In this case, only a false breakout near the next support at 1.2221 would justify opening long positions. I will also consider buying GBP/USD on a rebound from the 1.2190 low, targeting a 30–35 point correction intraday.

For Opening Short Positions on GBP/USD:

Pound sellers remain in control, but this could change if U.S. labor market and inflation data disappoint. Therefore, defending the 1.2319 resistance level remains a priority for bears. A false breakout there will provide a selling opportunity, targeting support at 1.2270. A breakout and retest of this range from below will trigger stop-loss orders, paving the way to 1.2221—a new monthly low—indicating a strengthening bearish trend. The final target will be the 1.2190 area, where profits will be locked in.

If demand for the pound returns after the data, and sellers fail to show activity around 1.2319—where moving averages also favor bears—sales should be deferred until resistance at 1.2365 is tested. I'll sell there only on a false breakout. If no downward movement occurs there, I'll consider short positions on a rebound from 1.2412, aiming for a 30–35 point downward correction intraday.

Commitments of Traders (COT) Report:

The December 31 COT report showed increases in both long and short positions. Overall, the balance of forces hasn't changed much, as many traders adopted a wait-and-see approach at the end of the year following the Bank of England's final meeting. The BoE's future stance remains uncertain, so market focus will likely shift to Donald Trump's inauguration and its implications for UK tariffs. If Trump's policies are softer and don't involve restrictive tariffs on the UK, the pound could regain strength. Otherwise, significant growth in GBP/USD is unlikely in the near term.

The latest COT report indicates that long non-commercial positions increased by 1,644 to 86,202, while short non-commercial positions rose by 132 to 65,367. The gap between long and short positions widened by 1,226.

Indicator Signals:

Moving Averages:

Trading is occurring below the 30- and 50-day moving averages, signaling further declines for the pair.

Note: The periods and prices of moving averages are based on the H1 hourly chart and may differ from daily moving averages on the D1 chart.

Bollinger Bands:

The lower boundary of the indicator near 1.2270 will act as support in the event of a decline.

Indicator Descriptions:

• Moving Average (MA): Identifies the current trend by smoothing volatility and noise. Period – 50 (yellow on the chart); Period – 30 (green on the chart).
• MACD Indicator (Moving Average Convergence/Divergence): Fast EMA – period 12, Slow EMA – period 26, SMA – period 9.
• Bollinger Bands: Period – 20.
• Non-commercial traders: Speculators, such as individual traders, hedge funds, and large institutions, using the futures market for speculative purposes.
• Long non-commercial positions: The total long open positions held by non-commercial traders.
• Short non-commercial positions: The total short open positions held by non-commercial traders.
• Net non-commercial position: The difference between long and short positions held by non-commercial traders.