GBP/USD: plan for the European session on January 4. COT reports. Pound tries to surpass last year's highs, even against

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

The British pound is preparing to surpass a major resistance at 1.3690, which was updated late last year. A breakout and consolidation above this level and being able to test it from top to bottom creates a good entry point into sustaining the bull market. The data on activity in the UK manufacturing sector, which will be released this morning, can support buyers in their goal. If the reports turn out to be better than economists' forecasts, we can expect a larger upward movement to the 1.3750 high and its renewal, with an exit to the 1.3803 area, where I recommend taking profit. If the pound is under pressure this morning, and we will not wait for it to be active in the 1.3690 area, then it is best to wait for a downward correction and open long positions only after a false breakout in the support area of 1.3629, where the moving averages are, playing on side of buyers pound. I recommend buying GBP/USD immediately on a rebound from a low of 1.3573, counting on an upward correction of 25-30 points within the day.

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

The pressure on the British pound may return at any moment, as nothing positive is expected at the beginning of this year. Several factors can weigh on the pound, which includes maintaining strict quarantines due to the new Covid-19 strain and the unclear work of supply chains in the UK after the introduction of new rules of the UK-EU trade deal. Therefore, the bears will try to prevent GBP/USD from rising above resistance at 1.3690. Forming a false breakout there in the first half of the day will be a signal to open short positions, while counting on a downward correction to a low of 1.3629, where the moving averages are, playing on the side of the pound buyers. A breakout of this range will quickly push GBP/USD to the 1.3573 low, where I recommend taking profits. If the pound continues to smoothly strengthen its positions after today's reports on manufacturing activity, then it would be best to postpone short positions until the 1.3750 highs are renewed, or to sell the pair immediately on a rebound from resistance at 1.3803, counting on a downward correction of 30-40 points within the day.

Let me remind you that the Commitment of Traders (COT) reports for December 21 recorded an increase in interest in the British pound, both among buyers and sellers. Long non-commercial positions increased from 35,128 to 37,550. At the same time, short non-commercial remained practically unchanged and increased only from 31,060 to 31,518. As a result, the non-commercial net position remained positive and grew from 4,068 to 6,032. All this suggests that traders continue to bet on the strengthening of the pound, even in the face of the new Covid-19 strain, which was first recorded in the UK. Everyone believes in the vaccine and that the beginning of this year, will be associated with strong economic growth as soon as the quarantine measures are lifted, which will give the market a new bullish momentum and result in the pound renewing new annual highs. Additional stimulus from the Bank of England may somewhat smooth out the upward trend in the pound, but it may not be there, since the trade deal with the EU was concluded at the very last moment.

Indicator signals:

Moving averages

Trading is carried out above 30 and 50 moving averages, which indicates that the pound will continue to rise.

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

A breakout of the upper border of the indicator around 1.3690 will lead to a new wave of growth for the pound. A breakout of the lower boundary at 1.3629 will increase 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.
  • Non-commercial short 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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