To open long positions on GBP/USD, you need:
The Federal Reserve's decision caused the pound to sharply rise, which was quite expected. I mentioned this in yesterday's forecasts. Also, quite a lot of signals for entering the market were formed. Let's take a look at the 5 minute chart and understand the entry points. After a small downward correction in the first half of the day, the bears managed to form a false breakout in the 1.3859 area, which is where I recommended opening long positions. However, since market volatility was low, there was no strong upward movement and, as a result, one could be content with only 25 points of profit. The bears managed to defend resistance at 1.3921 in the afternoon, which brought about a signal to sell the pound, which was reluctant to fall ahead of the Fed meeting. The downward movement reached around 25 points. A sharp rise towards the end of the US session led to a resistance test of 1.3970, from which I advised to sell the pair immediately on a rebound. The downward movement was about 30 points.
The bulls managed to go over an important resistance at 1.3917, which now acts as a support. Therefore, in the first half of the day, it is also important for the bulls to prevent a breakthrough of this range, where forming a false breakout will be a signal to open new long positions in continuing the upward April trend. An equally important task is to surpass the 1.3970 level, which held back the pound's growth in today's Asian session. Consolidating on it with a reverse test from top to bottom can create another entry point to long positions in hopes of an exit to resistance 1.4016, where I recommend taking profits. We can expect the pound to actively rise above the 1.4016 level only after today's US GDP report has been published, which is set in the afternoon. In case the pound falls and traders are not active in the support area of 1.3917: then I recommend holding back from long positions immediately to a rebound from the local low in the 1.3863 area, from where you can count on an upward correction of 25-30 points within the day.
To open short positions on GBP/USD, you need:
Pound sellers need to think of a way to regain support at 1.3917, since this scenario can interrupt the bullish momentum and return the pair to the horizontal channel, in which it was in for all of this week. Surpassing 1.3917 and testing this level from the bottom up creates a good signal to open short positions in GBP/USD with the main goal of falling to the support area of 1.3863, for which a fierce struggle will begin again. A breakthrough of this range will allow the bears to take control of the market, which will push GBP/USD to a low like 1.3811, where I recommend taking profits. Considering that we don't have any important fundamental data on the UK economy in the first half of the day, then it is possible for the pound to go back to the resistance area of 1.3970. Forming false breakout there can create a good entry point to short positions with the aim of falling to support 1.3917, where the moving averages, playing on the bulls' side, pass. If the bears are not active in the 1.3970 area: then the optimal scenario would be to sell immediately on a rebound from a new local high in the 1.4016 area, counting on a downward correction of 25-30 points within the day.
The Commitment of Traders (COT) reports for April 20 showed an increase in both long and short positions, while the total non-commercial net position remained almost unchanged, as it only slightly decreased from the previous value. The growth in positions indicates that players are returning to the market as they hope that the pound would rise further. However, such high prices are very attractive for the bears, therefore, a sharp increase in short positions was also recorded.
Good fundamental data, which was released last week on the UK economy, once again proves a rather high probability of strong economic growth rates in the second quarter of this year. This will further contribute to the pound's growth in the medium term, so I recommend betting that it would further strengthen against the US dollar. It is important how the market will react to the fundamental reports on the American economy this week, as well as to the Federal Reserve's decision on interest rates - this will be the main one for the pound's succeeding movement along the trend, or for a downward correction. The COT report revealed that long non-commercial positions rose from 52,851 to 61,053. At the same time, short non-commercial positions increased from 27,261 to 35,875, resulting in a non-commercial net position only slightly declining to 25,178, versus 25,590 a week earlier. On the other hand, the closing price jumped to 1.3991 against 1.3753 last week, which indicates an upward potential for the pair.
Trading is carried out above 30 and 50 moving averages, which indicates that the pound will continue rising.
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.
Surpassing the upper border of the indicator in the 1.3980 area 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 in the area of 1.3865.
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.