Hourly chart of the GBP/USD pair
The GBP/USD pair quite unexpectedly began to correct on Friday, January 22, although after surpassing the 1.3700 level it would be more logical to see the upward movement continue. However, market participants felt the need to slightly retreat. As a result, the correction could already be completed. Last Friday, the MACD indicator initially fell rather far, below the zero level, and then formed a buy signal (circled in the chart). Thus, novice traders could open long positions as early as Friday. Of course, I was a little embarrassed by the fact that the trading week was ending, but the risk was justified. When transferring deals to a new week, it is better to simply always set the Stop Loss level so that you do not get losses when opening with a gap on Monday. Also, beginners could work out a buy signal from January 20, which could get about 45 points of profit. Recall that all this time the pound/dollar pair is in an upward trend after the price settled above the downward channel. We also built an upward trend line, which shows the current trend even more eloquently.
The UK December retail sales report was released on Friday. Taking into account fuel sales, the growth was 0.3% m/m, excluding 0.4% m/m. The forecasts were almost three times higher. Business activity indices were also published, which were also worse than predicted values, while the service sector in January fell from 45.2 to 38.8. As we mentioned in the article on the euro/dollar, there is nothing surprising about this. In the European Union, business activity in the service sector dropped to 45 with one lockdown in winter, meanwhile, there were two lockdowns in the UK, so the service sector suffered even more. Considering the fact that the macroeconomic reports from the United States were quite good, it was absolutely logical for the pound to fall on Friday. We can only hope that this was a reaction from the markets, and not just a coincidence.
No macroeconomic reports from the UK and the US on Monday. No other event scheduled either. Therefore, most likely, we will have a boring Monday. At the same time, traders will again seek to bring the pair back to the 1.3745 high. As we have noted long ago, traders do not need a foundation now to actively trade or continue buying the pound. Recall that from a fundamental point of view, the British currency continues to grow absolutely groundless.
Possible scenarios on January 25:
1) Long positions remain relevant since the price left the downward trend channel and an upward trend line was formed. Novice traders should already be in long positions, aiming for 1.3766. If the MACD indicator turns down on Monday, then close the longs and wait for a new signal. Either the MACD indicator turns up, or the price rebounds from the trend line.
2) It is not recommended to consider short positions now, since there is an upward trend. Thus, you should only open short positions when the price has settled below the trend line. The targets in this case can be located around 1.3540 and 1.3500.
On the chart:
Support and Resistance Levels are the Levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Red lines are the channels or trend lines that display the current trend and show in which direction it is better to trade now.
Up/down arrows show where you should sell or buy after reaching or breaking through particular levels.
The MACD indicator consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend lines (channels and trend lines).
Important announcements and economic reports that you can always find in the news calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommended trading as carefully as possible or exit the market in order to avoid a sharp price reversal.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.
The material has been provided by InstaForex Company - www.instaforex.com