When to go long on GBP/USD:
Yesterday, two strong and profitable trading signals were produced. Now, let's look at the 5-minute chart and try to figure out what actually happened. When making my previous analysis, I paid attention to the 1.3160 level and said you should consider entering the market from there. A fall in the price to 1.3160 and a false breakout of the mark generated a strong signal to buy the pound. As a result, the quote rose by 50 pips and touched resistance at 1.3210. A false breakout that made a sell signal occurred there in the second half of the day. The price then fell by over 40 pips.
Drastic changes happened after the Asian session had closed. GBP bulls showed a positive reaction to US President Biden's statement who spoke a lot about Ukraine and stressed NATO would definitely not interfere. The president emphasized that only Ukraine has the right to decide whether to make territorial concessions. Biden's statement has instilled optimism in traders and they now expect Russia and Ukraine to continue peace talks. To extend the uptrend, bulls will try to protect support at 1.3200 during the European session. The price may test this mark relatively soon as it is likely to happen after the release of disappointing February retail sales results in the UK. The pair will recoup losses if a false breakout takes place at 1.3200, in line with bullish moving averages. If so, bulls will push the price to resistance at 1.3242, today's first target. In the case of strong retail sales data, a breakout and a retest of the level top-bottom will give a buy signal, allowing bulls to approach the area of 1.3286 and 1.3340 highs. A more distant target stands at 1.3390, where taking a profit should be considered. However, the pair will be able to go there only if some breakthrough is achieved in peace talks between Russia and Ukraine. In the event of a fall during the European session and a decrease in bullish activity at 1.3200, you could go long when the price has reached support at 1.3158, in line with the lower limit of the new ascending channel, and a false breakout has occurred. Long positions on GBP/USD could also be entered on a rebound from 1.3121 or the 1.3089 low, allowing a 30-35 pips correction intraday.
When to go short on GBP/USD:
Bears lost control of the 1.3200 level during the Asian session today. The pair's growth potential will be limited today due to the release of possibly disappointing macro data in the UK. Bears will try to protect resistance at 1.3242. In the case of a false breakout there, the pair will fall to support at 1.3200. Bulls and bears will both try to establish control over this level as it will determine the further price movement. The barrier is also in line with bullish moving averages. A false breakout and a test of the mark bottom-top will produce an additional sell signal with targets at the 1.3158 and 1.3121 lows, where you should consider taking a profit. The 1.3089 level serves as a more distant target. In the event of bullish GBP/USD in the first half of the day and a decrease in bearish activity at 1.3242, you could go short when the price reaches resistance at 1.3286, the monthly high, and only if there is a false breakout. Short positions on GBP/USD could be entered on a rebound from 1.3340 or the 1.3390 high, allowing a 20-25 pips correction intraday.
Commitments of Traders
The COT report (Commitments of Traders) for March 15 logged a sharp drop in long positions and only small changes in short ones. The results of the BoE meeting avidly affected the British currency. Despite the expected increase in the interest rate, the regulator did not hint at a further tightening of monetary policy. It decided to stick to more dovish rhetoric despite soaring inflation that already reached all-time highs. Falling household income and the worsening standard of living are weighing on the regulator. The regulator is hesitant to take more aggressive measures because of the current geopolitical situation. A more aggressive tightening may harm the economy rather than help it. The regulator needs to find measures to cap rising inflation, avoiding potentially harmful decisions. Many analysts believe that inflation may climb higher in spring. Therefore, traders are in no hurry to buy the pound sterling. Besides, it is losing momentum against the US dollar. The FOMC meeting was in the limelight last week. The watchdog raised the interest rate by 0.25%. This decision did not stir up volatility as many traders had already priced it in. To this end, it is recommended to open long positions on the US dollar as the bearish trend on the GBP/USD pair persists. The only thing that may halt a sell-off of the pound sterling is high inflation. It will eventually force the Bank of England to take a hawkish stance. The COT report for March 15 revealed that the number of long non-profit positions declined to 32,442 from 50,982, while the number of short non-profit positions dropped to 61,503 from 63,508. It increased in the negative delta of the non-commercial net position to -29,061 from -12,526. The weekly closing price dropped to 1.3010 against 1.3113.
Indicator signals:
Moving averages
Trading is carried out slightly above the 30-day and 50-day moving averages, indicating that bulls are attempting to gain control over the market.
Note: The period and prices of moving averages are viewed by the author on the hourly chart and differ from the general definition of classic daily moving averages on the daily chart.
Bollinger Bands
The lower band at 1.3160 stands as support. Resistance is seen at 1.3230 in line with the upper band.
Indicator description:
- Moving average (MA) determines the current trend by smoothing volatility and noise. Period 50. Colored yellow on the chart.
- Moving average (MA) determines the current trend by smoothing volatility and noise. Period 30. Colored green on the chart.
- Moving Average Convergence/Divergence (MACD). Fast EMA 12. Slow EMA 26. SMA 9.
- Bollinger Bands. Period 20
- Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial positions are the total long position of non-commercial traders.
- Non-commercial short positions are the total short position of non-commercial traders.
- Total non-commercial net position is the difference between short and long positions of non-commercial traders.
