To open long positions on GBP/USD, you need:
Despite the fact that the intraday volatility for the pound was not at its highest level yesterday, several signals to enter the market were formed during the day, which I propose to analyze. Let's look at the 5-minute chart and talk about what happened: after a small upward correction to the 1.3892 area in the first half of the day, the bears achieved a false breakout there, where I recommended opening short positions in the morning. As a result, the downward movement reached around 35 points, closer to lunchtime the bulls returned to 1.3892 and hoped that they could surpass it, which eventually happened. Going beyond 1.3892 with a reverse test of this level from top to bottom created a good entry point for long positions. However, the pound's growth was not exactly enjoyable, since it only recovered 30 points.
I have completely revised the technical picture. In the first half of the day, the bulls should try to prevent a breakthrough of support at 1.3859, where forming a false breakout will be a signal to open long positions, as we expect the upward trend in April to continue. Surpassing the 1.3921 level is also significant. Consolidating on this level with a reverse test from top to bottom (by analogy with longs, which I analyzed above) can create another entry point to long positions in hopes of an exit to resistance at 1.3970, where I recommend taking profits. The 1.4016 level will be open to the bulls on the condition that the Federal Reserve does not make any changes to its monetary policy. In case the pound falls and there is lack of activity in the support area of 1.3859, then I recommend holding back from long positions immediately to rebound from a new local low in the 1.3811 area, where you can count on an upward correction of 25-30 points within the day.
To open short positions on GBP/USD, you need:
The bears need to think of a way to regain support at 1.3859, since such a scenario will lead the pair out of the horizontal channel and continue the downward correction, which they have been trying to build since April 20. Only a decline and a test of the 1.3859 level from bottom to top creates a good signal to open short positions in GBP/USD with the main goal of falling to the support area of 1.3811. Surpassing this range, which will happen only if the Fed makes serious changes in its interest rate policy, will allow the bears to take control of the market, which will then push GBP/USD to a low like 1.3755, where I recommend taking profit. Since important fundamental reports on the UK economy will not be released in the first half of the day, then it is possible for the pound to recover and reach the resistance area of 1.3921. Forming a false breakout there can create a good entry point to short positions with the aim of falling to support at 1.3859. If the bears are not active there, then the optimal scenario would be to sell immediately on a rebound from the local high in the 1.3970 area, counting on a downward correction of 25-30 points within the day.
The Commitment of Traders (COT) reports for April 20 showed an increase in both long and short positions, while the total non-commercial net position remained almost unchanged, as it only slightly decreased from the previous value. The growth in positions indicates that players are returning to the market as they hope that the pound would rise further. However, such high prices are very attractive for the bears, therefore, a sharp increase in short positions was also recorded.
Good fundamental data, which was released last week on the UK economy, once again proves a rather high probability of strong economic growth rates in the second quarter of this year. This will further contribute to the pound's growth in the medium term, so I recommend betting that it would further strengthen against the US dollar. It is important how the market will react to the fundamental reports on the American economy this week, as well as to the Federal Reserve's decision on interest rates - this will be the main one for the pound's succeeding movement along the trend, or for a downward correction. The COT report revealed that long non-commercial positions rose from 52,851 to 61,053. At the same time, short non-commercial positions increased from 27,261 to 35,875, resulting in a non-commercial net position only slightly declining to 25,178, versus 25,590 a week earlier. On the other hand, the closing price jumped to 1.3991 against 1.3753 last week, which indicates an upward potential for the pair.
Indicator signals:
Moving averages
Trading is carried out just below the 30 and 50 moving averages, which indicates an attempt by the bears to take control of the 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
Surpassing the lower border of the indicator in the area of 1.3870 will increase the pressure on the pound. Growth will be limited by the upper level of the indicator around 1.3921.
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.
