To open long positions on GBP/USD, you need:
Yesterday's signal to sell the pound was realized, and there were no more signals to enter the market. Let's take a look at the 5-minute chart and figure out what happened yesterday. You can clearly see how the bears are trying to surpass support at 1.3657 and even settle below this range, which creates a sell signal. However, the market did not go down the first time, and after the release of data on activity in the service sector, the British pound temporarily returned to the area above the 1.3657 level, which resulted in removing stop orders. Some time later, the bears went below 1.3657 again, and this area was tested from top to bottom, which created another signal to open short positions. The downward movement from this level reached more than 40 points, and we did not reach the target level of 1.3612 by only 5 points. If the 1.3612 level has been tested, it would have been possible to open long positions immediately on a rebound, which would have made it possible to catch an upward correction.
A rather important meeting of the Bank of England will take place today. And although the interest rates and the volume of bond purchases will remain unchanged, we can talk about negative rates in the future, which will hit the pound's positions hard. Therefore, it will be possible to say that the bulls have regained control of the market only after they achieve a breakout and consolidation above the resistance of 1.3660. Testing this level from top to bottom creates a good entry point into long positions. In this case, we can expect GBP/USD to return to the resistance area of 1.3707, and the succeeding target will be the 1.3755 high, where I recommend taking profits. It is too early to talk about a breakout of annual resistance. An equally important task for the bulls is to protect the last hope for restoring the upward movement - namely, the 1.3612 level. Forming a false breakout there creates a signal to open long positions in hopes for the pound to recover in the short term. If traders are not active at 1.3612 and the price surpasses it, then it is best to refuse to buy until larger lows in the 1.3575 and 1.3521 area have been updated, from where you can open long positions immediately on a rebound, 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 in the middle of the 1.3660 channel will return pressure to the pair and lead to its succeeding decline. A more important goal is a breakout and consolidation below support at 1.3612, which is the last hope for buyers. The Bank of England's statements that the economy is in bad shape and that negative interest rates will reduce the debt burden will lead to a breakout of the 1.3612 level, which will open a direct path to the lows of 1.3575 and 1.3531, where I recommend taking profit. If the bulls manage to recapture the 1.3612 level in the first half of the day, then, as I mentioned above, the bears will focus on resistance at 1.3660. The lack of activity in that area following Bank of England Governor Andrew Bailey's speech will lead to a new wave of growth for GBP/USD. In this case, the optimal scenario for short positions is when the 1.3707 high has been tested. I also recommend opening short positions immediately on a rebound in the resistance area of 1.3755, 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 below 30 and 50 moving averages, which indicates a succeeding decline in the pair.
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 1.3660 will lead to a new wave of growth for the pound. A break of the lower border at 1.3612 will increase pressure on the pound.
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.
