To open long positions on GBP/USD, you need:
The bears tried to maintain control over the market in the first half of the day, but nothing good came of it. Let's take a look at the 5-minute chart and talk about what happened. We see how the bears are trying to surpass 1.3685, but then the pair briefly returned to the area above this level. Falling under the support of 1.3685 creates a signal to open short positions in sustaining the downward trend. However, the downward movement was around 20 points, afterwards the sellers lost the initiative. Then the bulls regained control over the 1.3685 level, but I did not wait for a convenient entry point, and did not wait for this level to be tested from top to bottom. After GBP/USD grew in the second half of the day, a false breakout formed at the resistance of 1.3742, where I recommended to open short positions. As a result, the downward correction reached around 40 points.
The bulls need to defend support at 1.3693 in the morning, which is also the midpoint of the horizontal channel, which is where the pound was last week. Today's focus will be on the UK's manufacturing activity report. Good news will help us form a false breakout in the 1.3693 area, which will strengthen the positions of the pound buyers and lead to the pair's growth to the resistance area of 1.3746, above which it has not yet been possible to break through. Getting the pair to settle on this area and testing it from top to bottom will certainly lead to a new wave of GBP/USD growth in the 1.3794 and 1.3846 areas, where I recommend taking profits. In case the pound falls and buyers are not active in the support area of 1.3693, where the moving averages are playing on the side of buyers, then it is best not to rush to buy the pound. The best option would be to wait for the GBP/USD to drop to a larger low of 1.3637, which is also the lower limit of the horizontal channel, and open long positions from there immediately on a rebound, counting on an upward correction of 20-25 points within the day.
To open short positions on GBP/USD, you need:
The bears will do their best to surpass the 1.3693 level. You can open short positions from there, similar to last Friday's entry point, which I analyzed a little higher. Testing this level from the bottom up creates a good entry point while expecting the quote to return to the 1.3637 low, which is the lower limit of the horizontal channel. A breakthrough of this area will result in removing a number of stop orders of buyers and a powerful movement down to support levels at 1.3584 and 1.3531, where I recommend taking profits. You should be very careful with short positions just in case the pound grows in the morning and we receive a good report on manufacturing activity in the UK. Forming a false breakout in the resistance area of 1.3746 (I analyzed a similar entry point after a false breakout) will generate a signal to open short positions. I recommend selling GBP/USD immediately on a rebound from a high of 1.3794, counting on a small correction of 25-30 points within the day.
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 just above 30 and 50 moving averages, which indicates a sideways 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 daily D1 chart.
Bollinger Bands
A breakout of the upper border of the indicator around 1.3746 will lead to a new wave of growth in the pound. In case the pair falls, support will be provided by the lower border of the indicator in the 1.3693 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.
