To open long positions on GBP/USD, you need:
The unpredictable pound has created a lot of trouble in the last few trading days, since the signals do not bring profit. For example, yesterday morning there was a breakout of the support level (1.3680), which created a signal to sell the pound. Look at the 5-minute chart. You can see how the bears are trying to settle below 1.3680 and even tested it from the bottom up, creating a good entry point for short positions. Unfortunately, the signal was not implemented and the quote returned to the 1.3680 level, which led to the fixation of losses. A similar situation happened with purchases from this level immediately after the bulls took control of it. Testing this area from top to bottom (and I pointed out the possibility of this entry point in yesterday's afternoon forecast) created a good signal to open long positions, but there was no adequate growth.
Before examining the technical picture of the pound, let's take a look at what happened in the futures market. The demand for the pound continues to persist even as it finds itself in the area of annual highs. The Commitment of Traders (COT) reports for January 19 recorded a reduction in both long and short positions, which indicates that traders are taking a more cautious approach to this trading instrument. Long non-commercial positions fell from 47,935 to 45,904. At the same time, non-commercial short positions fell from 34,993 to 32,199. We can see that the decline in short positions is much stronger than long ones. As a result, the non-commercial net position increased and reached 13,705 against 12,942 a week earlier. And although traders are trying to take a more wait-and-see position in the area of annual highs, and this is a consequence of the fact that it is very difficult for the bulls to update them, the demand for the pound will still be quite high. The GBP/USD pair will actively move up as quarantine measures are lifted, which have been strengthened due to the new strain of Covid-19. A wait-and-see position of the Bank of England on changes in monetary policy also supports the British pound, and the new labor market support program, which was recently proposed by the UK Treasury Secretary, keeps investors quite optimistic and confident in the medium-term strengthening of the pair.
Pound buyers need to work very hard to regain control of the market. A breakout and consolidation above resistance at 1.3686 and being able to test this level from top to bottom creates a good entry point into long positions. As an example, you can take yesterday's buy trade after the breakout of the 1.3680 level, which I analyzed a little higher. In this case, we can expect GBP/USD to return to the area of the annual resistance of 1.3735 where I recommend taking profit. The succeeding target will be a new high at 1.3770. If GBP/USD is under pressure in the first half of the day, and this may happen immediately after the report on the unemployment rate in the UK, then buyers will have to maintain control over the 1.3636 level. Forming a false breakout there will be a signal to open long positions in hopes for the pound to recover in the short term. You can open long positions immediately on a rebound after testing the low of 1.3585, counting on an upward correction of 30-40 points within the day.
To open short positions on GBP/USD, you need:
The bears have a difficult task. Forming a false breakout in the resistance area of 1.3686, along with weak data on the number of applications for unemployment benefits and the level of income of the UK population, will return pressure to the pair and lead to its succeeding decline. A more important goal is a breakout and being able to settle below support at 1.3636, just above which is the lower limit of the current rising channel formed on January 11 this year. Testing the 1.3636 level from the bottom up creates a good signal to open new short positions in GBP/USD in hopes of falling to a low of 1.3585, where I recommend taking profits. If the bulls manage to regain the 1.3686 level in the morning, then it is better not to rush with short positions. The optimal scenario for selling the pound is when the 1.3735 high has been updated. I also recommend opening short positions immediately on a rebound in the resistance area of 1.3770, counting on a downward correction of 30-35 points within the day.
Indicator signals:
Moving averages
Trading is carried out just below the 30 and 50 moving averages, which indicates the possibility of the pound's succeeding decline.
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 around 1.3686 will lead to a new wave of growth for the pound. A breakout of the lower border of the indicator in the 1.3650 area will increase the pressure on the pair.
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.
- Short non-commercial 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.
