To open long positions on GBP/USD, you need:
Only one long entry signal was generated last Friday. Let's take a look at the 5-minute chart and break down the entry point. We can see how even before the US labor market report was released, the bulls are trying to break through and consolidate above the resistance of 1.3688. Being able to test this level from top to bottom leads to forming a signal to open long positions. As a result, after the report was released, one could observe the strengthening of the GBP/USD pair. The pound's gain came even against the backdrop of the strong non-farm employment report and a decline in overall US unemployment, as many large traders took advantage of this moment and took long positions in the dollar. For the sake of fairness, it should be said that I personally did not leave long positions in the pound before this report came out, as I was confused by the breakdown of 1.3688. I left long positions after returning to this level.
Bank of England Governor Andrew Bailey will speak today, and if he does not touch upon the topic of negative interest rates, then buyers will initially aim for resistance of 1.3757, on which a lot depends. A breakout and being able to surpass this level, along with a downward test creates an excellent buy signal in sustaining the bull market. Surpassing 1.3757 will also allow the quote to leave the wide horizontal channel, which will hit a number of stop orders of major sellers above this level and, accordingly, lead to a larger rally in GBP/USD. In this case, you can count on updating the high at 1.3791 and an exit to resistance at 1.3825, where I recommend taking profits. If the pound is under pressure after Bailey's speech, then forming a false breakout in the 1.3723 area will be a signal for you to open new long positions. If buyers are not active in this range, it is best to wait for a downward correction to the support area of 1.3688, where the moving averages pass, playing on the side of buyers. You can open long positions on a rebound in that area, counting on an upward correction of 20-25 points within the day. Bigger support comes at 1.3645.
To open short positions on GBP/USD, you need:
The bears will count on forming a false breakout in the resistance area of 1.3757. This scenario will limit the upward potential of the pound and create a new signal to sell. A more important task is to regain control of support at 1.3723, which they missed in today's Asian session. We can expect the pound to be under pressure if Bailey raises the topic of negative interest rates, leaving the possibility of their introduction in the future if necessary. In this case, a breakout and consolidation below 1.3723 can be seen. Testing this level from the bottom up creates a good signal to sell GBP/USD in order to renew support at 1.3688, where I recommend taking profit. The low of 1.3645 is a distant target. If GBP/USD does not rapidly fall after a false breakdown in the resistance area of 1.3757, then it is best not to rush to sell, but wait for a new wave of growth and an exit to a high of 1.3791, from which you can open short positions immediately on a rebound, counting on a downward correction in 20-25 points within a day. The next major resistance is seen at 1.3825.
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 conducted above 30 and 50 moving averages, which indicates a succeeding recovery for 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 in the 1.3757 area 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 at 1.3688.
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.
