To open long positions on GBP/USD, you need:
Yesterday the pound generated a large number of signals to enter the market. Let's take a look at the 5-minute chart with you and analyze all the entry points. I recommended starting from the 1.4048 level and making decisions on entering the market exactly from it. In the first half of the day, there was a breakthrough and a reverse test of the level of 1.4048, which created a sell signal, however, as you can see, it only led to losses. A quick return to the level of 1.4048 and its test from top to bottom created a convenient entry point into long positions, however, there, too, the growth reached around 20 points, afterwards the bulls' optimism dried up. The bears achieved a normal breakthrough of the support at 1.4048 closer to the middle of the day, but I never saw the opposite test, although everything was heading towards this. A scenario in which I would open short positions and show on the chart. During the US session, one could observe how the bulls failed to regain control of the market, in each attempt, when a false breakout was formed and it returned to the level of 1.4048, a signal to open short positions was created, which brought in 20-25 points of profit.
From a technical point of view, the market remains under the bears' control, which are clearly aimed at updating new local lows, but the bulls are hindering this in every possible way. The first half of the day promises to be rather calm, as important fundamental reports on the UK are not expected. All the bulls need is to protect an important support level of 1.4014. Forming a false breakout there generates a signal to open long positions in expecting an upward correction to the resistance area of 1.4059. The bulls will have problems just at this level, since there are moving averages that limit the pair's upward potential and it will not be so easy to rise above. In case of a breakthrough and a test of the level of 1.4059 from top to bottom, you can safely open new long positions in continuation of the upward correction of the pound, with the aim of reaching a high like 1.4108, where I recommend taking profits. The next big resistance comes at 1.4160 area. If the bulls are not active in the support area at 1.4014, then it is best not to rush into long positions, as the emphasis will shift to the afternoon, when important reports on US retail sales are released. The optimal scenario would be long positions immediately to rebound from the low of 1.3970, or even lower - from the level of 1.3921, counting on an upward correction of 25-30 points within the day.
To open short positions on GBP/USD, you need:
The bears are aiming for the next support level of 1.4014, which limited the pair's downside potential in the first half of the day. The bear's focus will shift to this very level. A breakthrough and consolidation below 1.4014 with a reverse test from the bottom up can create a good entry point to short positions in anticipation of a succeeding fall in GBP/USD along the trend to the 1.3970 area, and then to a further target to a low like 1.3921, where I recommend taking profits. If we see the pound rising during the European session, then the best option for opening short positions would be to form a false breakout in the resistance area of 1.4059, on which quite a lot depends. A breakthrough of this area and lack of activity on the part of the bears there will lead to removing a number of bears' stop orders and to a more active growth in GBP/USD. In this case, it is best to postpone short positions until a larger local high in the 1.4108 area has been updated, counting on a downward correction of 20-25 points within the day.
The COT reports (Commitment of Traders) for May 4 showed that long positions decreased and short ones have increased. However, the report does not take into account Friday's market changes, when the British pound showed a large increase. Last week, we all followed the Bank of England's decision on interest rates, so traders feared for the pound's succeeding growth, building up short positions. Keeping monetary policy unchanged had limited the pound's growth potential, but hints from the committee members that it is time to think about curtailing stimulus programs breathed new strength into the bulls. A disappointing report on the US labor market will continue to weigh on the dollar for a long time at any opportunity. Therefore, the trend for strengthening the British pound will continue. The prospect of a recovery in the UK economy in the summer, when all quarantine restrictions will be lifted, also causes a lot of optimism and helps the bulls find excuses to build up their positions. The COT report indicated that long non-commercial positions declined from 59,917 to 52,262. At the same time, short non-commercial positions rose from 30,699 to 32,414, causing the non-commercial net position to decline to 19,848 versus 29,218 a week earlier. But the price rose to 1.39033 against 1.38947 at the end of the last week.
Indicator signals:
Trading is carried out below 30 and 50 moving averages, which indicates a further decline for the pair in the short term.
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
Surpassing the upper border of the indicator in the area of 1.4059 will lead to a new wave of growth for the pound. Surpassing the lower border of the indicator in the area of 1.4014 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.
