To open long positions on GBP/USD, you need:
Several signals to enter the market appeared yesterday. Let's take a look at the graph and break them down. Good data on manufacturing activity in the UK caused euro buyers to attempt to rise above the resistance of 1.3746, but nothing came of it. Subsequently, after returning below this level (which in itself was already a false breakout), the bulls tried to rise to this range again, but they failed, which only strengthened the positions of the pound sellers. The generated signal to sell the pound pushed the pair to the area of the 1.3693 target level. The pair settled below this range in the afternoon, and was tested from the bottom up, which then created another signal to open short positions and caused the pair to fall by another 40 points.
Before examining the technical picture of the pound, let's see what happened in the futures market. The demand for the pound continues to persist even as it remains in the area of the horizontal channel. 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.
Pound buyers need to work very hard to regain control of the market. Only the breakout and consolidation above the 1.3706 resistance and being able to test this level from top to bottom can create a good entry point for 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. 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 creates a signal to open long positions in order for the pound to recover in the short term. You can open long positions immediately on a rebound after testing the low of 1.3621, counting on an upward correction of 20-30 points within the day.
To open short positions on GBP/USD, you need:
Forming a false breakout in the middle of the 1.3706 channel will return the pressure to the pair and lead to its succeeding decline. Moving averages, which play on the side of the sellers of the pound, also pass there. A more important goal is being able to settle below support at 1.3657. Testing this level from the bottom up creates a good signal to open new short positions in GBP/USD as we aim to fall to lows of 1.3621 and 1.2584, on which the pair's succeeding direction will depend. A breakout of these ranges will drive the pound out of the horizontal channel, which will create a new downward trend for the pair. If the bulls manage to recapture the 1.3706 level in the morning, then it is better not to rush with short positions. The optimal scenario for selling the pound is being able to renew 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.
Indicator signals:
Moving averages
Trading is carried out just below the 30 and 50 moving averages, which indicates the possibility of the pound's succeeding decline.
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 1.3706 will lead to a new wave of growth for the pound. A breakout of the lower border of the indicator in the 1.3657 area will increase the pressure on the pair.
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.
