GBP/USD: plan for the European session on December 21. COT reports. Pound won back everything it lost on Monday morning.

To open long positions on GBP/USD, you need:

Such strong volatility in the British pound is nonsense. However, when Brexit and the new strain of coronavirus come under pressure, the observed price swings are the norm. Let's take a look at the 5-minute chart and talk about what happened yesterday morning after the great trades that I reviewed at the end of the European session. We can see how the bulls regained control over resistance at 1.3290, surpassing and testing it from top to bottom, which creates a new signal to buy the pound. It slightly retreated after rising to the resistance area of 1.3362. I recommended selling on a rebound from the 1.3362 level. However, there was no major sell-off and the bulls easily surpassed 1.3362, collecting the bears' stop orders. All this leads to a large rise and a breakdown of 1.3434. Selling from this level on a rebound resulted in a loss. But this is not scary, since there were just a huge number of positive deals yesterday.

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Despite the extremely high volatility of the pound, buyers must maintain control over the 1.3362 level in the first half of the day. Forming a false breakout there will be a signal to open long positions in hopes for the pound to recover in the short term and reach the resistance of 1.3434. The main goal will be to surpass it and settle. Testing this level from top to bottom creates an additional entry point into long positions in order to reach a high of 1.3525, where I recommend taking profits. The succeeding targets will still be resistances at 1.3617 and 1.3690, but they will be available only if we receive good news on the Brexit deal. In case bulls are not active in the 1.3362 support area, it is best not to rush into long deals, but wait until the 1.3290 low has been updated. However, I recommend opening long positions from this level only after forming a false breakout. A larger support level is seen in the 1.3193 area, where you can buy GBP/USD immediately on a rebound, counting on a correction of 35-40 points.

To open short positions on GBP/USD, you need:

Bears will focus on today's UK GDP data, but this report is unlikely to lead to a strong surge in volatility. Forming a false breakout in the resistance area of 1.3434 will return the pressure to the pair and result in the pair's decline and a test of the next support at 1.3362. Surpassing this level and testing it from the bottom up, similar to the sales that I analyzed in yesterday's forecast for the pound, creates a good signal to open short positions in GBP/USD, in hopes for it to fall to lows of 1.3290 and 1.3193, from where there was strong demand yesterday buyers. Only bad news on the trade agreement can significantly pull down GBP/USD to the 1.3114 low. If bulls manage to defend the 1.3362 level, then it is better not to rush with short positions. The optimal scenario for selling the pound will be failure to settle above 1.3434. I recommend opening short positions immediately on a rebound from the high of 1.3525, counting on a downward correction of 30-35 points within the day.

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The Commitment of Traders (COT) reports for December 15, there is a decrease in interest in the British pound for both buyers and sellers. Long non-commercial positions decreased from 39,344 to 35,128. At the same time, short non-commercial positions decreased from 33,634 to 31,060. As a result, the non-commercial net position, although it remained positive, dropped to 4,068, against 5,710 versus a week earlier. All this suggests that traders are taking a wait-and-see attitude, although a small preponderance of buyers, even in the current situation, continues to be observed. Given that the UK has imposed tough quarantine measures due to a new strain of coronavirus that has gotten out of control and for which there is no vaccine yet, then expecting the pound to strengthen further at the end of this year will not be the right decision. Only good news on Brexit can bring new players back into the market, betting on GBP/USD growth.

Indicator signals:

Moving averages

Trading is carried out in the area of 30 and 50 moving averages, which indicates some confusion in the market regarding the pair's succeeding direction.

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

If the pound rises, the upper border of the indicator at 1.3510 will act as resistance. A breakout of the middle border of the indicator in the 1.3365 area 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.
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