What is needed to open long positions on GBP/USD
Last Friday, there were good entry points that helped reaped a profit. Now let's look at the 5-minute chart and try to figure out what actually happened. In the morning article, I highlighted the levels of 1.3200 and 1.3158 recommended taking decisions with these levels in focus. A sell signal appeared after a drop in the morning due to weak retail sales data and the breakout of 1.3200 with an upward test. The pound/dollar pair sank by 30 pips to the important support level of 1.3158. I talked about this level in detail in my morning article. A false breakout of this level gave a buy signal. The pair managed to rise by 40 pips, recovering to 1.3200. During the American session, the bears successfully defended the level of 1.3200. There was a new sell signal after another breakout. However, the pair dipped by only 20 pips. Shrorty after, the bulls pushed the pair to 1.3200.
Today, BoE governor Andrew Bailey is going to deliver a speech today. He is expected to provide more clues about the regulators' plans on monetary policy. The watchdog is forced to take more aggressive measures due to galloping inflation. However, monetary policy tightening may not be enough due to the weakening UK economy. Therefore, traders are unwilling to open long positions on the pound sterling. They prefer sitting on the sidelines. It is recommended to open long positions today at 1.3121. The pair is likely to make an attempt to break through this level quite soon, especially after the BoE governor's speech. The quotes may recover to 1.3173 provided that there will be a false breakout at this level. The moving averages are passing in the negative territory at that level. A breakout and a downward test of this level will give a buy signal, allowing the bulls to push the price to the highs of 1.3219 and 1.3253. A more distant target level will be 1.3286 where I recommend profit-taking. The pair is likely to break through this level only if there is some positive news on the negotiations between Russia and Ukraine. If the pound/dollar pair drops during the European session and bulls show no activity at 1.3121, bears may take the upper hand. If so, it is better to postpone long positions until the support level of 1.3089. This level seems more solid. I would also advise opening long positions at this level only in case of a false breakout. You can buy GBP/USD immediately on a rebound from 1.3046 or even a lower low of 1.3003, keeping in mind an intraday correction of 30-35 pips.
What is needed to open short positions on GBP/USD
On Friday, bears actively defended the upper boundary of the sideways channel at 1.3215. It limited an upward potential. Now, bears should protect the resistance level of 1.3171. If they manage to push the price below this level at the close, the bears will take control. If so, the pair may return to the March lows. A false breakout at 1.3173 will give a sell signal. The pair is likely to decline to the support of 1.3121. Bears will have to fight very hard for this level as the further trajectory of the pair will be determined at this level. For this reason, the market's reaction to the statements of the BoE Governor, Andrew Bailey, is also important. A breakout and an upward test of this level will give an additional sell signal, which will open a road to the lows of 1.3089 and 1.3046. I recommend profit-taking at this level. A more distant target will be 1.3003. If GBP/USD rises in the first half of the day and bears show no activity at 1.3173, it is better to postpone short positions until the next major resistance level of 1.3219. It is the upper limit of the sideways channel. I would also advise you to open short positions there if there is a false breakout. It is possible to sell GBP/USD immediately for a rebound from 1.3253 or even a higher high of 1.3286, keeping in mind an intraday correction of 25-30 pips.
COT report
The COT reports (Commitment of Traders) for March 15 logged a sharp decline in long positions and a small drop in short ones. The results of the last meeting of the Bank of England adversely affected the British sterling. Despite an expected increase in the interest rate, the regulator did not announce a more aggressive monetary policy stance. The watchdog decided to stick to more dovish rhetoric despite soaring inflation, which has already reached all-time highs. UK residents are unhappy with constantly rising consumer prices. Therefore, the UK regulator has to take a more hawkish stance. Nevertheless, it may harm the economy more than help it in the current difficult geopolitical situation. Now, the central bank should act rather carefully as the fight against inflation is just beginning. Analysts are worried about how the inflation situation will unfold this spring. This is why traders are in no hurry to buy the pound sterling. It is also dropping against the US dollar. The FOMC meeting was in limelight last week. The regulator raised the key rate by 0.25%. Market reaction was subdued as many traders expected such a decision. So, I would advise increasing long positions on the US dollar as the bearish trend for the GBP/USD pair is likely to persist. The only thing that keeps the pound sterling from a sell-off is high inflation in the UK, which will eventually force the Bank of England to act more aggressively. The COT report for March 15 revealed that the number of long non-commercial positions decreased to 32,442 from 50,982, while the number of short non-commercial positions dwindled to 61,503 from 63,508. This led to an increase in the negative delta of the non-commercial net position from -12,526 to -29,061. The weekly closing price dropped to 1.3010 against 1.3113.
Signals of technical indicators
Moving averages
GBP/USD is trading below 30- and 50-period moving averages. It means that the bears don't give up attempts to take the upper hand.
Remark. The author is analyzing a period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.
Bollinger Bands
In case of a rise, the upper limit of the pair around 1.3220 will act as resistance.
Definitions of technical indicators
- Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart.
- Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is displayed as the green line.
- MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal line".
- Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average.
- Non-commercial traders - speculators such as retail traders, hedge funds and large institutions who use the futures market for speculative purposes and meet certain requirements.
- Non-commercial long positions represent the total long open position of non-commercial traders.
- Non-commercial short positions represent the total short open position of non-commercial traders.
- The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.
