To open long positions on GBP/USD, you need:
In yesterday's afternoon forecast, I drew attention to the 1.3503 level and recommended to act based on it. Let's take a look at the 5-minute chart and talk about where you can and should enter the market. I said that before selling, you need to wait for a false breakout, which happened. We see that following the bulls' unsuccessful attempt to regain control over resistance at 1.3503, the trade had once again moved under this range. Then, several unsuccessful attempts at growth were also made, which created a downward wave for the pound. The fall was around 40 points, but we did not get to the key target.
At the moment, I have revised the nearest support and resistance levels again and a rather interesting picture has turned out. Although the news on the lockdown will continue to weigh on the pound, and it is possible that we will see a continuation of the downward correction, buyers of the pound still have an excellent chance to take control of the market. The initial goal is to settle above resistance at 1.3531, testing it from top to bottom creates a good signal to open long positions in hopes to reach the middle of the sideways channel at 1.3594, where I recommend taking profits. Surpassing 1.3531 might be abrupt, as the moving averages also pass at this level, this limits the pound's growth in the short term. We can finally speak about restoring the bullish trend only when we have updated the 1.3661 high, which buyers will strive for in the middle of this week. If GBP/USD is under pressure this morning, then the bulls will have to think of a way to protect support at 1.3452. Forming a false breakout there creates the first signal to open long positions. In the absence of activity at this level, it is best not to rush into longs, but wait for an update of the larger support area of 1.3372 and buy the pound there immediately on the rebound, counting on an upward correction of 30-40 points within the day.
To open short positions on GBP/USD, you need:
The pound could be under pressure at any moment, since we don't expect anything positive from a new lockdown. The bears will try to prevent GBP/USD from rising above the 1.3531 resistance. However, forming a false breakout there in the first half of the day will be a signal to open short positions, in hopes for a downward correction to the area of a low of 1.3452, which suddenly appeared yesterday. An equally important task is to go beyond and settle below this range, testing it from the bottom up (similar to yesterday's sales, which I analyzed above), creates a convenient entry point into short positions, which will quickly pull down GBP/USD to a low of 1.3372, where I recommend taking profit. It is too early to talk about reaching 1.3308 and 1.3193 in the near future, but it will be possible if the situation with the coronavirus worsens and the lockdown in the UK extends. If bears ignore resistance at 1.3531, and since we do not expect any important fundamental reports from the UK today, then it is best to postpone short positions until new highs in the 1.3594 and 1.3661 areas have been updated, counting on a downward correction of 30-40 points within the day.
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.
Trading is carried out in the area of 30 and 50 moving averages, which indicates an attempt by buyers to regain control of the market.
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 D1 daily chart.
A breakout of the upper border of the indicator around 1.3550 will lead to a new wave of growth for the pound. In case the pair falls, support will be provided by the lower border of the indicator at 1.3455.
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.