To open long positions on GBP/USD, you need:
Last Friday there were quite a few pound-related events that I would like to talk about. Let's take a look at the 5 minute chart and figure out what happened. Back in my Friday morning forecast, I drew attention to support at 1.3888 and the UK retail sales report. A disappointing report pushed the pair to go beyond this level, but the reverse test from the bottom up did not take place, so I missed the shorts from 1.3888. Then the bulls began to actively win back the market and the divergence, which was clearly visible on the MACD indicator, and successfully regained this area by testing it from top to bottom. This was a signal to open long positions. However, there was no strong movement against the trend, and after several attempts to rise 15 points upwards, the pressure on the pair returned.
A breakthrough and test of the 1.3888 level, where I advised to sell the pound, resulted in forming a signal to open short positions, after which the pair quickly collapsed to the support area of 1.3799, allowing around 90 points of profit to be taken from the market. The rebound from support at 1.3799 at the end of the day also allowed traders to earn around 30 points.
Important UK data is not expected today, so volatility is expected to be more modest. It is becoming increasingly difficult for the bears to sell the pound at the current lows, but the low has not yet been found, so be very careful with long positions. Forming a false breakout in the 1.3790 area creates the first signal to open long positions in order to restore GBP/USD to the resistance area of 1.3833, just above which the moving averages pass, seriously limiting the upward potential. A breakthrough and consolidation above this level with a reverse test from top to bottom will open a direct path to the 1.3888 area where I recommend taking profits. With GBP/USD falling to the 1.3790 area and if the bulls are not active, which is likely, given the bear market we are currently witnessing, it is best to postpone long positions until the 1.3755 low is renewed. It is also worth paying attention to the divergence, which is now forming on the MACD indicator and limits the pair's downward potential in the short term. It is also possible to buy the pound immediately upon a rebound from the level of 1.3717, counting on an upward correction of 25-30 points within the day.
To open short positions on GBP/USD, you need:
The bears have one task - a breakthrough and consolidation below the support of 1.3790. A breakthrough and reverse test from the bottom up of this level will indicate the formation of a new entry point into short positions and will allow GBP/USD to reach new local lows of 1.3755 and 1.3717, where I recommend taking profits. The absence of important fundamental reports may ease the pressure on the British pound earlier this week. Do not forget about the divergence, which is now being formed on the MACD indicator and plays on the bulls' side. Therefore, selling on the breakthrough of the next local lows will be a very dangerous business. It is best to wait for the GBP/USD to recover in the first half of the day to the resistance area of 1.3933 and open short positions from there after forming a false breakout. If the bears are not active, then I recommend postponing short positions until the test of the larger area of 1.3888, where you can sell the pound immediately on a rebound, counting on a downward correction of 20-25 points within the day. Moving averages that play on the side of the bears also pass in this range.
The Commitment of Traders (COT) reports for June 8 showed that both long and short positions decreased, but this did not negatively affect the positive delta, but on the contrary, it even increased due to a larger reduction in sellers' positions. This indicates the presence of a fairly large interest of buyers with each decline in the pound. Similar statements from representatives of the Bank of England no longer work, and the market reacts rather weakly even to the speeches of Governor Andrew Bailey. Without real changes and adjustments to the bond buying program by the central bank, it will be quite difficult for the British pound to get out of the horizontal channel, in which it has been in for almost a month. An important moment will be the full opening of the UK economy, which is scheduled for the 20th of this month. The spread of the Indian strain of the coronavirus in the territory creates a number of obstacles to this, which affects the desire of investors to buy the British pound. The best scenario is to buy for every good decline in the British pound against the US dollar. The COT report indicated that long non-commercial positions fell from 64,204 to 59,238, while short non-commercial positions fell much more strongly from 40,079 to 31,524. As a result, the non-commercial net position rose from 24,125 to 27,714. Last week's closing price changed significantly and amounted to 1.41757 against 1.42270.
Indicator signals:
Trading is carried out below 30 and 50 moving averages, which indicates a bear market and a possible succeeding decline in the pound.
Moving averages
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 breakthrough of the average border of the indicator in the 1.3833 area will lead to an upward correction of the pound. The pressure on the pair will be contained by the lower border of the indicator in the area of 1.3760.
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.
