To open long positions on GBP/USD, you need:
Yesterday morning, the bulls went beyond the 1.3531 level and settled there, as a result of which a signal to buy the pound was created. The chart clearly shows how the bears' attempts to return to the 1.3531 area were unsuccessful. To be fair, those who missed this trade did the right thing, in fact, the 1.3531 level was not tested from top to bottom. As expected, the pound stopped rising in the 1.3594 area, where the bears created a sell signal, thereby forming a false breakout there. However, this did not lead to a major sell-off, and returning and being able to settle above 1.3594 closer to the middle of the US session pushed GBP/USD to rise to a high of 1.3661, where I recommended taking profits.
The pound sharply increased after news that the Bank of England abandoned the idea of resorting to negative interest rates due to their negative impact on the English banking system. Now, the bulls will initially aim to settle above this year's high at 1.3701, which may lead to removing a number of stop orders. Such a scenario will only push the pound to a larger upward trend in areas like 1.3750 and 1.3803, where I recommend taking profits. If we don't see active purchases after updating the high of 1.3701, then it is better to take your time with long positions. A more optimal scenario is a downward correction to the support area of 1.3649, where a false breakout creates a signal to enter the market. If bulls are not active, then I recommend that you postpone long positions until a larger support at 1.3590 has been updated, which was formed yesterday morning. There are also moving averages, so you can open long positions immediately on the rebound, counting on an upward correction of 30-40 points within the day.
To open short positions on GBP/USD, you need:
Pressure on the British pound will depend on whether sellers are active around this year's high. The momentum for growth may quickly come to an end, since the situation in the UK economy has not improved in any way since a lockdown and quarantine were introduced at the end of 2020. Bears will try to prevent GBP/USD from rising above the resistance of 1.3701, but forming a false breakout there in the first half of the day will be a signal to open short positions, and it aims to create a downward correction so that the pair can reach intermediate support at 1.3649, where buyers of the pound will become active during the initial test. An important task is to settle below this range, testing it from the bottom up creates a convenient entry point into short positions, which will quickly pull down GBP/USD to a low of 1.3590, where I recommend taking profits. If the bears ignore resistance at 1.3701, and since we have important US inflation data today that can potentially weaken the dollar's position, then it is best to hold back from opening short positions until highs around 1.3750 have been updated, or sell GBP/USD immediately for a rebound from the resistance of 1.3803, counting on a downward correction of 30-40 points within the day.
The Commitment of Traders (COT) report for January 5 recorded a slight decline in interest in the British pound, but this does not affect the overall picture. Long non-commercial positions decreased from 37,550 to 35,526. At the same time, short non-commercial positions remained practically unchanged and only increased from 31,518 to 31,861. As a result, the non-commercial net position, although it decreased, remained positive and reached 3,665 against 6,032 a week earlier. All this suggests that traders continue to bet on the strengthening of the pound, even in the face of the new Covid-19 strain, for which there is no vaccine yet. The demand for the pound is limited by quarantine measures in the UK, which will sooner or later be canceled after the infection stabilizes. Additional stimulus from the Bank of England, which economists will soon talk about, may also somewhat smooth out the upward trend in the pound.
Indicator signals:
Moving averages
Trading is carried out above 30 and 50 moving averages, which indicates the pound's succeeding growth.
Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the D1 daily chart.
Bollinger Bands
A breakout of the upper border of the indicator around 1.3710 will lead to a new wave of growth for the pound. In case the pair falls, support will be provided by the lower border of the indicator at 1.3570.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart.
- MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial 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.
- Total non-commercial net position is the difference between short and long positions of non-commercial traders.
