To open long positions on GBP/USD, you need:
The British pound has been trading in a tight horizontal channel for the past week, showing no significant signs of growth since the conclusion of a trade agreement late last year. This position did not suit the speculative players, who gradually began to take profits, fearing a downward correction. Most likely, the pressure on the British pound will remain at the beginning of this week.
Before examining the technical picture of the pound, let's take a look at what happened in the futures market. Demand for the pound, although it remains, is gradually declining due to concerns about supply chain disruptions and weak economic growth earlier this year in the UK. The Commitment of Traders (COT) report for January 5 recorded a slight decline in interest in the British pound, but this does not affect the overall picture. Long non-commercial positions decreased from 37,550 to 35,526. At the same time, short non-commercial positions remained practically unchanged and only increased from 31,518 to 31,861. As a result, the non-commercial net position, although it decreased, remained positive and reached 3,665 against 6,032 a week earlier. All this suggests that traders continue to bet on the strengthening of the pound, even in the face of the new Covid-19 strain, for which there is no vaccine yet. The demand for the pound is limited by quarantine measures in the UK, which will sooner or later be canceled after the infection stabilizes. Additional stimulus from the Bank of England, which economists will soon talk about, may also somewhat smooth out the upward trend in the pound.
As for the pair's technical picture, the pound is still under pressure in today's Asian session, which may result in a new sale at the beginning of the European session. Buyers must maintain control over the 1.3493 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 resistance at 1.3557. The main goal will be to break through and consolidate. Testing this level from top to bottom creates an additional entry point, which will open a direct road to highs of 1.3629 and 1.3701, where I recommend taking profits. In case the pound falls further and bulls are not active in the support area of 1.3493, it is best not to rush to buy, but wait for an update of the 1.3433 low, where you can buy GBP/USD immediately on a rebound, counting on a 30-40 point correction within the day.
To open short positions on GBP/USD, you need:
The lack of important fundamental reports early in the week will continue to put some pressure on investors who are taking profits after the lack of large gains expected from the UK's EU-trade deal. Forming a false breakout in the resistance area of 1.3557 will weigh on the pair and result in its succeeding decline. A more important goal is to be able to surpass and settle below support at 1.3493. Testing this level from the bottom up creates a good signal to open short positions in GBP/USD, in hopes of pulling down the pair so it can reach lows of 1.3433 and 1.3372, which is where I recommend taking profits. If the bulls manage to regain the 1.3557 level in the morning, then it is better not to rush with short positions. The optimal scenario for selling the pound will be updating the high at 1.3629. I also recommend opening short positions immediately on a rebound in the resistance area of 1.3701, counting on a downward correction of 30-35 points within the day.
Indicator signals:
Moving averages
Trading is carried out below 30 and 50 moving averages, which indicates that the pound could fall in the short term.
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 indicator's middle border at 1.3557 will act as a resistance. Selling the pound immediately on a rebound can be done from the upper border of the indicator in the 1.3629 area.
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.
