To open long positions on GBP/USD, you need:
Yesterday was a rather difficult day for trading the British pound, which continued to bend its line and test its nerves for strength. Let's take a look at the 5-minute chart and break down the trades. In the first half of the day, a false breakout at the 1.3636 level created a signal to buy the pound, however, after a small upward trend, the bears managed to return to this level and surpassed it. The UK labor market report was pleasing, so it was strange to observe such an ambiguous behavior from the pair. Surpassing 1.3636 and its test from the bottom up created a signal to open short positions, but it was not realized and only brought a loss. An excellent entry point to long positions appeared during the US session, which helped compensate for all the losses and make money. In my afternoon forecast, I clearly wrote about the need to open long positions after the breakout and consolidation above the resistance of 1.3686, which happened. The growth was around 50 points. I also advised to open short positions on a rebound from the 1.3735 level, counting on a correction of 20-25 points, which could be observed in case the pair does not settle above this range.
This morning the bulls need to think of a way to surpass the next annual high in the 1.3747 area. A breakout and being able to settle above this level, and testing it from top to bottom, creates another signal to open long positions in sustaining the bull market, which began yesterday morning after the UK labor market report was released. In this case, we can expect a renewal of highs around 1.3770 and 1.3805, where I recommend taking profits. The next target will be the 1.3846 level, which will provide an excellent result by the end of the week. In the event of a downward correction of the British pound, one can count on longs after a false breakout is formed in the support area of 1.3707, slightly below which there are moving averages playing on the side of buyers. If there is no activity there, I recommend postponing long positions until a larger low of 1.3672 is updated, from where you can buy GBP/USD immediately on a rebound for the purpose of moving up by 20-25 points within the day.
To open short positions on GBP/USD, you need:
The bears will do their best and try to regain control over the 1.3707 level. You can open short positions from there only when the GBP/USD pair has settled below this range and once it has been tested from the bottom up, which creates a good entry point and for the purpose of restoring the downward correction. In this case, the initial target of the bears will be support at 1.3672, but a more difficult task is to update the 1.3637 area, where I recommend taking profit. You need to be very careful with short positions in case the pair grows in the morning. Forming a false breakout in the resistance area of 1.3747, where the upward movement stopped yesterday, creates a signal to open short positions. I recommend selling GBP/USD immediately on a rebound from a high of 1.3770, counting on a small correction of 25-30 points within the day. A larger resistance area remains at the bottom of the 38th figure.
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.
Indicator signals:
Moving averages
Trading is carried out above 30 and 50 moving averages, which indicates succeeding growth for the British pound.
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
Growth will be limited by the upper level of the indicator in the 1.3770 area. In case the pair falls, support will be provided by the lower border of the indicator at 1.3672.
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.
