When to go long on GBP/USD:
UK macro data has lately been disappointing. Although the previous year ended on a more positive note – GDP was upwardly revised – current developments could lead to an economic downturn. High inflation is still the primary source of concern for the Bank of England. The regulator is reluctant to resort to a more aggressive stance on monetary policy as it does not want to harm the weak British economy even more. The March manufacturing PMI to be released in the UK today is likely to come in lower than the market consensus due to high costs caused by strong inflationary pressure. Under such circumstances, the pound is unlikely to show growth today. However, if the PMI comes better than expected, bulls will be able to protect the nearest support at 1.3106. A false breakout there will make a buy signal, and the GBP/USD will approach the middle of the sideways channel (1.3142). An additional buy entry point will form, should the quote break through the level and test it top-bottom. If so, bullish activity will increase to the upper limit of the range as well as yesterday's high of 1.3179, where you should consider profit taking. The level of 1.3219 stands as a more distant target. However, against the current backdrop, this target could hardly be reached. Nevertheless, it is still possible if data on the US labor market comes in disappointing. In case of bearish GBP/USD during the European session and a decrease in bullish activity at 1.3106, you may look for buy entry points from 1.3071 after a false breakout there. Long positions on GBP/USD could also be entered on a bounce from 1.3038, or even lower, from 1.3003, allowing a 30-35 pips correction intraday.
When to go short on GBP/USD:
Yesterday's response from sellers and a fall in the pound during the North American session came as no surprise because the price has been bearish for the entire week. Bears are now confident in spite of the fact that bulls are trying to build a new upward correction. The longer the pair stays in the sideways channel, the greater is the chance of continuing the downtrend that emerged on March 23. GBP/USD currently trades in the area of the moving averages, indicating the sideways trend in the market and active confrontation between buyers and sellers. Beras will try to protect the 1.3142 level. In case of a false breakout there, a sell entry point will form with the target at 1.3106. Bulls and bears will both try to establish control over this barrier because if the price leaves the range again, it will trigger a row of stop orders of buyers, and GBP/USD will plunge to the lows of 1.3071 and 1.3038. A more distant target is seen at 1.3003, where you should consider profit taking. In the event of bullish GBP/USD during the European session and a decrease in bearish activity at 1.3142, you may look for sell entry points after the price has reached the 1.3179 high and a false breakout has occurred. Short positions on GBP/USD could be entered on a bounce off the 1.3219 high, or even higher, off 1.3253, allowing a 30-35 pips downward correction intraday.
Commitments of Traders:
The COT report from March 22 logged a sharp increase in short positions and a minor rise in long ones. The pound again came under pressure after statements were made by Fed policymakers last week. The sterling is still unable to recover due to certain headwinds in the UK economy that put a strain on households. Experts warn that inflationary risks hinder a normal pace of economic development in the country. So, the situation may get even worse. Soaring energy prices, the geopolitical tensions in Ukraine, the backlash of severe Western sanctions are harmful to the British economy. The dovish stance of the Bank of England's Governor made traders sell the sterling this week. The sell-off is likely to continue due to the lack of positive news. The only driver GBP bulls can rely on is progress in Russia-Ukraine peace talks. According to the COT report from March 22, long non-commercial positions increased to 32,753 from 32,442. Short non-commercial positions climbed to 69,997 from 61,503. As a result, the negative value of non-commercial net positions grew to -37,244 from -29.061. The weekly closing price increased to 1.3169 versus 1.3010.
Indicator signals:
Moving averages
Trading is carried out in the range of the 30-day and 50-day moving averages, indicating a sideways movement in 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 1.3115 stands as support. Resistance is seen at 1.3150 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.
