To open long positions on GBP/USD, you need:
Several signals to enter the market appeared yesterday. Let's sort them all out. In my morning forecast, I paid attention to short positions in the resistance area of 1.3706, provided that a false breakout was formed there, which happened. Since there weren't any significant fundamental reports, buyers of the pound did not receive support after trying to surpass resistance at 1.3706. Subsequently, the price returned to the area below this level, which resulted in forming a false breakout and a signal to open short positions in the pound during the downward correction. As a result, the downward movement brought more than 40 points of profit, as the pair quickly fell to the support area of 1.3657, where it stopped again. The breakout of the 1.3657 level was passed without a reverse test, so I missed the downward movement to the 1.3621 area. However, we managed to make money on being able to buy on a rebound from the support of 1.3621, which I recommended to do in my forecast for the US session. As a result, the correction has fully worked itself out and more than 25 points could still be taken from the market.
Despite the high volatility, the technical picture has not changed. Pound buyers need to work hard to regain control of the market. A breakout and consolidation above resistance at 1.3707 and being able to test it from top to bottom can create a good entry point into long positions. In this case, we can expect GBP/USD to return to the area of the annual resistance of 1.3755, where I recommend taking profits. Surpassing this level would open a direct path to the highs of 1.3825 and 1.3879. We can only count on such a large growth if we receive strong fundamental data on the UK services sector, which is unlikely to show a serious recovery in January this year, especially given the lockdown. If GBP/USD is under pressure in the first half of the day, and this may happen after an unsuccessful attempt to break through the middle of the channel, then the buyers must maintain control over the 1.3657 level, which will be quite difficult to do. Forming a false breakout there generates a signal to open long positions in hopes for the pound to recover in the short term. It is possible to open long positions immediately on a rebound after testing the low of 1.3612, counting on an upward correction of 20-30 points within the day.
To open short positions on GBP/USD, you need:
You can act similar to yesterday. Forming a false breakout near the middle of the 1.3707 channel will weigh on the pair and lead to its succeeding decline. A more important goal is a breakout and being able to settle below support at 1.3657. A disappointing report on the services sector and the composite PMI index and being able to test this level from the bottom up can create a good signal to open new short positions in GBP/USD, for the purpose of falling to lows of 1.3612 and 1.3575, since the pair's succeeding direction will depend on it. A breakout of these ranges will pull the pound out of the horizontal channel, creating a new downward trend. If the bulls manage to recapture the 1.3707 level in the morning, then it is better not to rush with short positions. The optimal scenario for selling the pound will be the renewal of the 1.3755 high. I also recommend opening short positions immediately on a rebound in the resistance area of 1.3825, counting on a downward correction of 30-35 points within the day.
The Commitment of Traders (COT) reports for January 26 showed an increase in both long and short positions. This time there were much more sellers, which led to a decrease in the positive delta. Apparently, the bulls' failure to rise above the annual highs still do not go unnoticed, forcing traders to raise short positions as they expect a more active downward correction from the pound. Long non-commercial positions rose from 45,904 to 47,360. At the same time, short non-commercial positions jumped from 32,199 to 39,395, which is a very tangible increase. As a result, the non-commercial net position decreased to 7,965 against 13,705 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 high. The GBP/USD pair will continue to rise as quarantine measures are lifted, which have been strengthened due to the new Covid-19 strain. Population and labor market support, which could last until the early summer of 2021, will also have a positive effect on the British pound. All the talk about negative interest rates on the part of the Bank of England has no real basis yet. The British central bank will report on this topic in the near future, which can outline the picture in more detail with the further course of interest rates.
Indicator signals:
Moving averages
Trading is carried out in the area of 30 and 50 moving averages, which indicates the sideways nature of the market.
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 1.3690 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 in the 1.3625 area.
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.
