To open long positions on GBP/USD, you need:
Yesterday, signals to enter the market were created in the first half of the day. The US session did not provide convenient entry points to the market. Let's take a look at the 5-minute chart. We can see that the bulls' failure to surpass resistance at 1.3701, which I paid attention to in my morning forecast, resulted in creating a signal to sell the pound. I highlighted the areas where the signal was generated and where it was confirmed. As a result, we reached the target value of 1.3649 in the US session, which brought more than 50 points of profit. Those who were more stubborn could have tried to wait until the 1.3590 low was updated, but we still have not reached it, although the euro bears hit the pound buyers' ambitions.
The new challenge is to regain control over resistance at 1.3649. A breakout and being able to test this level from top to bottom may result in forming a signal to buy the pound and its main goal is for the quote to return to this year's high in the 1.3701 area. An update of this level can result in removing a number of stop orders. This scenario will only push the pound to a larger upward trend in areas of 1.3750 and 1.3803, where I recommend taking profit. If resistance at 1.3649 has been updated and there are no active purchases, it is better not to rush with long positions. In this case, I recommend waiting for the pair's downward correction to reach a larger support at 1.3590, from where you can open longs immediately on a rebound, counting on an upward correction of 30-35 points within the day. In the same place, the bears will try to build the lower border of the new rising channel that was formed on January 11.
To open short positions on GBP/USD, you need:
The pound will still be under pressure as long as the bears control resistance at 1.3649. All they need is another false breakout in the 1.3649 area, which will only raise the pressure on GBP/USD and cause it to fall to a large support at 1.3590, where I recommend taking profits. The next target will be the low of 1.3547, which will become the defining one in the current downward correction of the pound. If bears are not active in the resistance area of 1.3649, and since important fundamental data on the UK economy will not be released in the first half of the day, then I recommend abandoning short positions until the pound returns to the resistance area of 1.3701. However, forming a false breakout there creates a signal to open shorts, counting on a downward correction to the support area of 1.3649.
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 just below 30 and 50 moving averages, which indicates the bears' attempt to take 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 daily D1 chart.
A breakout of the lower border of the indicator around 1.3610 will increase the pressure on the pound. Growth will be limited by the upper level of the indicator in the 1.3680 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.