To open long positions on GBP/USD, you need:
A fairly large number of signals to enter the market appeared yesterday. Let's take a look at the 5-minute chart and break them down. In my morning forecast, I drew attention to short positions in the pound when a false breakout was forming, which happened. The 1.3747 level turned out to be too tough for buyers of the pound, and an active attempt to sustain the growth of GBP/USD failed. As a result, a false breakout of this level was formed, afterwards it was possible to open short positions. And so the pound fell to the support area of 1.3707, which brought around 35 points of profit. Afterwards, forming a false breakout at this level gave hope for a quick resumption of growth, but the signal was not implemented, and after a while the bears managed to push the quote below 1.3707 and began to form a base for the pair's succeeding decline, which is clearly visible on the chart. As a result: this led to another wave of decline to the support area 1.3672, from where I recommended to open long positions immediately on a rebound, which happened.
This morning the bulls need to regain control over resistance at 1.3690. Afterwards, we can talk about sustaining the upward trend for the pound. Being able to settle in this level and testing it from top to bottom will only strengthen the pair's position, which creates a good entry point in hopes to return the pair to resistance at 1.3726, slightly below which the moving averages pass, playing on the side of the bears. A breakthrough in this area will most likely lead to updating the next annual highs around 1.3765, where I recommend taking profit. In case the pound falls further, the bulls will try to form a false breakout in the support area of 1.3652, which will also be a signal to build up long positions. Being able to surpass this level will depend on the US GDP report for the fourth quarter. If the pound sharply falls below 1.3652, it is best to abandon long positions until a larger local low of 1.3612 is updated, where you can buy GBP/USD immediately on a rebound, counting on an upward correction of 20-25 points within the day.
To open short positions on GBP/USD, you need:
The bears will try their best to surpass 1.3652, since the pair's succeeding decline in the short term depends on it. However, you can open short positions from there when the pair has settled below this area and once it has been tested from the bottom up, which creates a good entry point (similar to the one I analyzed above), expecting the downward correction to reach the low of 1.3612, beyond which we can witness an active fight. A breakthrough of this area, together with the US GDP data, will result in removing a number of buyers' stop orders and a powerful downward movement to the support area at 1.3575 and 1.3531, where I recommend taking profits. In case the pair grows in the morning, you need to be very careful with short positions. Forming a false breakout in the resistance area of 1.3690 generates a signal to open short positions. I recommend selling GBP/USD immediately on a rebound from a high of 1.3726, counting on a small correction of 25-30 points within the day. The larger area of resistance remains at the bottom of the 38th figure.
The Commitment of Traders (COT) reports for January 19 recorded a reduction in both long and short positions, which indicates that traders are taking a more cautious approach to this trading instrument. Long non-commercial positions fell from 47,935 to 45,904. At the same time, non-commercial short positions fell from 34,993 to 32,199. We can see that the decline in short positions is much stronger than long ones. As a result, the non-commercial net position increased and reached 13,705 against 12,942 a week earlier. And although traders are trying to take a more wait-and-see position in the area of annual highs, and this is a consequence of the fact that it is very difficult for the bulls to update them, the demand for the pound will still be quite high. The GBP/USD pair will actively move up as quarantine measures are lifted, which have been strengthened due to the new strain of Covid-19. A wait-and-see position of the Bank of England on changes in monetary policy also supports the British pound, and the new labor market support program, which was recently proposed by the UK Treasury Secretary, keeps investors quite optimistic and confident in the medium-term strengthening of the pair.
Indicator signals:
Moving averages
Trading is carried out below 30 and 50 moving averages, which indicates the likelihood of a decline in the pound.
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 lower border of the indicator around 1.3652 will increase pressure on the pound. Growth will be limited by the upper level of the indicator around 1.3730.
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.
