To open long positions on GBP/USD, you need:
Last Friday was not a good day to trade the British pound. Let's take a look at the entry points that were formed and find out where they led. The breakout of the support level 1.3704, which occurred in the first half of the day, resulted in creating pressure for the pound, while weak data on retail sales in the UK only strengthened the pressure for the pair. In the first half of the day, we could only see one signal to buy the pound, because after surpassing the 1.3704 level, the reverse test did not take place and due to this I was forced to miss this entry point. Closer to the middle of the European session, a signal to buy the pound was created after a false breakout was formed at the 1.3669 level and this level was tested from top to bottom. But they failed to wait for a larger growth from the pair. The bears tried to fall below the 1.3656 level during the US session and they seem to have succeeded. A reverse test of this level from the bottom up created a good point for opening short positions, but nothing happened here either, since the pair quickly returned to the 1.3656 level without falling through to new daily lows. The only positive signal appeared at the end of the US session following the test of the 1.3656 level. This led to a small upward correction of 30 points within the day.
This morning the bulls need to think of a way to protect support at 1.3680, since a lot depends on it. Forming a false breakout on it will be a signal to open long positions, in order to sustain the upward trend and reach a high of 1.3733, where you can observe profit taking and a slight rebound from the pair to the downside, especially amid the absence of important UK fundamental reports. A breakout and being able to settle above 1.3733 and testing this level from top to bottom will lead to a buy signal and a succeeding growth for GBP/USD to highs of 1.3770 and 1.3805, where I recommend taking profits. If buyers are not active and the pound falls below the 1.3680 level, then it is better not to rush to buy, but wait for an update of support at 1.3636, from where you can open long positions immediately on a rebound in order to move up 20-25 points within the day. A larger low is seen around 1.3685.
To open short positions on GBP/USD, you need:
The bears will do their best to try and regain control over the 1.3680 level. However, you can only open short positions in GBP/USD after getting the pair to settle below the 1.3680 level and once it has been tested from the bottom up, which creates a good entry point for short positions in hopes of restoring the downward correction and being able to return to the 1.3636 level. We will have to talk about a more powerful bearish momentum once sellers have finally managed to surpass this level, which will open a direct path for GBP/USD to 1.3585 and 1.3531, where I recommend taking profits. In case the euro grows in the morning, you need to be very careful with short positions. Forming a false breakout in the resistance area of 1.3733 creates a signal to open short positions. I recommend selling GBP/USD immediately on a rebound from a high of 1.3870, counting on a small correction of 25-30 points within the day.
The Commitment of Traders (COT) report for January 12 recorded an increase in long and short positions, but there were more of the first ones, which led to an increase in the delta. Long non-commercial positions increased from 35,526 to 47,935. At the same time, short non-commercial positions increased from 31,861 to 34,993. We can see that there were much fewer sellers than new buyers. As a result, the non-commercial net position rose to 12,942 against 3,665 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. The Bank of England's recent refusal to introduce negative interest rates and the pound's decline earlier this year have brought many large medium-term buyers back into the market, expecting a continuation of the bull market this spring.
Indicator signals:
Moving averages
Trading is carried out in the area of 30 and 50 moving averages, which indicates some uncertainty with the pair's succeeding direction.
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 daily D1 chart.
Bollinger Bands
A breakout of the upper border of the indicator at 1.3700 will lead to a new wave of growth for the pound. In the event of a decline, support will be provided by the lower border of the indicator at 1.3645.
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.
