Last Friday, traders received several signals to enter the market. Let's have a look at what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.2817 as a possible entry point. A rise and false breakout there produced a sell signal, but the pair did not actively fall, which led to losses. In the second half of the day, after a false breakdown at 1.2884, we managed to enter the market in short positions. As a result, the pound fell by more than 40 pips.
What is needed to open long positions on GBP/USD
The US labor market data became another reason to build up long positions on the pound, as the Bank of England is probably the only central bank that believes that it is possible to lower rates without waiting for inflation to return to the target level of 2.0%. The UK economic calendar is empty today, so the pound may continue to develop a bullish trend. Obviously, it is best to act on corrective moves. In case the pair falls, I would prefer to act after a false breakdown close to the nearest support at 1.2840, established on Friday. This will give a good entry point for long positions in the expectation of supporting the uptrend with the prospect of testing 1.2853. It is a new resistance level, where buyers are sure to face serious problems. A breakout and consolidation above this range will strengthen the demand for the pound and open the way to 1.2923, which will boost the bulls' positions, thus intensifying the uptrend. The farthest target is seen at the high of 1.2957, where I am going to take profit. In case of a decline and a lack of bullish activity at 1.2840, which is also in line with the moving averages, the pound may lose ground. In this case, only a false breakdown near the next support at 1.2801 will confirm the correct entry point. I plan to buy GBP/USD just after a rebound from the low of 1.2755, expecting a rise of 30–35 pips within the day.
What is needed to open short positions on GBP/USD
The bears were active last Friday, but this only limited the pound's upward potential, without affecting the bullish trend. Only a false breakdown near the new resistance at 1.2883 will confirm the sell signal, which will lead to selling with the target of a downward correction and a decline to 1.2830 - the support established on Friday. A breakout and an upward test of this range will deal a blow to bulls' positions, leading to the removal of stop orders and open the way to 1.2801. This is where I expect big buyers to show up. The farthest target will be the area of 1.2755, where they will take profits. If GBP/USD grows and there is no activity at 1.2883, buyers will feel the strength again in the expectation of an uptrend. In this case, I will postpone selling until there is a false breakdown at 1.2923. If there is no downward movement there, I will sell GBP/USD just after a bounce from 1.2957, in anticipation of the pair declining by 30-35 pips intraday.
COT report:
According to the COT report (Commitment of Traders) for February 27, the number of both short and long positions increased. The latest inflation data and the statements of the Bank of England's officials that rates could be lowered even if inflation fails to reach the 2.0% target have become of secondary importance. Now, a lot will depend on the position of the Federal Reserve. US policymakers are concerned about the fact that inflation is no longer coming down as much as they would like, which could lengthen the cycle of high interest rates until late summer this year. This all is capping the pound's appreciation, thus boosting the US dollar. The latest COT report unveiled that long non-commercial positions rose by 4,368 to 91,970, while short non-commercial positions jumped by 4,322 to 45,612. As a result, the spread between long and short positions increased by 3,290.
Indicators' signals
Moving averages
The instrument is trading above the 30 and 50-day moving averages, which points to a possible rise in the pound.
Note: The period and prices of the moving averages are considered by the analyst on the 1-hour chart and differ from the general definition of classic daily moving averages on the daily chart.
Bollinger Bands
In case GBP/USD goes down, the indicator's lower border near 1.2830 will act as support.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked 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.
