To open long positions on GBP/USD, you need:
In my morning forecast, I paid attention to the level of 1.3409 and recommended making decisions on entering the market. Let's look at the 5-minute chart and figure out what happened. Given that the bears were in full control of the situation after yesterday's meeting of the Federal Reserve System, it was difficult to count on the activity of buyers in the first half of the day. A false breakdown at 1.3409 gave an excellent signal to buy the pound, but after a 20-point increase, the initiative quickly dried up. The repeated test of 1.3409 provided a breakthrough of this level and a further fall of the pair. And what were the entry points for the euro this morning?
Bulls can no longer offer anything that would somehow affect the bearish trend, which is actively gaining strength. A lot today will depend on US GDP data, which may somehow affect the balance of power. Given that the report is expected to be very positive, only a very strong discrepancy for the worse with forecasts will lead to a decline in the dollar and a rise in the pound in the afternoon. An important task for buyers now is to protect the next support of 1.3368, to which the pound is rapidly falling at the time of writing. Only weak US data will help bulls cope with the pressure of sellers.
A false breakout at 1.3368 forms the first buy signal with the prospect of recovery to the 1.3409 area - this level needs to be urgently returned before the end of the day since otherwise, the bears will take the market completely under their control. A breakdown and a test of 1.3409 from top to bottom will give an additional entry point into long positions to return to the maximum of 1.3452. A more difficult task will be the test of the 1.3485 area, where the moving averages are playing on the sellers' side. I recommend fixing profits there.
Under the scenario of a decline in GBP/USD during the US session and a lack of activity at 1.3368, and judging by what is happening now, it is better not to rush into buying risky assets. I advise you to wait for the test of the next major level of 1.3344 and only the formation of a false breakdown there will give an entry point to long positions. You can buy the pound immediately on a rebound from 1.3322, or even lower - from a minimum of 1.3301, counting on a correction of 20-25 points within a day.
To open short positions on GBP/USD, you need:
Sellers of the pound are proving their presence in the market and are now targeting 1.3368. However, the primary task for today is to protect the 1.3409 level, which we managed to win back in the first half of the day. A fairly large number of stop orders pass above this range, the triggering of which will lead to an instant jump of the pound up. Only the formation of a false breakdown at 1.3409 and strong statistics on the USA form another entry point into short positions, followed by a decline in the pair to the area of 1.3368, for which we will have to fight very hard. A breakdown and a test of 1.3368 from the bottom up will give an additional entry point into short positions in the expectation of a further decline in GBP/USD by 1.3344 and 1.3322, where I recommend fixing the profits.
If the pair grows during the American session and sellers are weak at 1.3409, it is best to postpone sales until the next major resistance at 1.3452. I also advise you to open short positions there only in case of a false breakdown. You can sell GBP/USD immediately for a rebound from 1.3485, or even higher - from this month's maximum in the area of 1.3523, counting on the pair's rebound down by 20-25 points inside the day.
The COT reports (Commitment of Traders) for January 18 recorded an increase in long positions and a reduction in short positions - which indicates the continued preservation of the attractiveness of the pound after the Bank of England raised interest rates at the end of last year. Expectations have increased quite seriously that at its next meeting, the regulator may again resort to another increase in interest rates by 0.25 points, which will only strengthen the pound's position. However, the observed fundamental picture creates several more serious moments that limit the upward potential. First of all, we are talking about inflation, which is "eating up" everything that the UK labor market can offer at the moment with cosmic speed. Despite high wages and falling unemployment, high inflation leaves nothing from household incomes, and high prices for energy and other services make their well-being even lower than the level that was observed during the coronavirus pandemic. If you look at the overall picture, the prospects for the British pound look pretty good, and the observed downward correction makes it more attractive. In any case, the Bank of England's decision to raise interest rates further this year will push the pound to new highs. It is worth recalling that this week everyone is waiting for the results of the meeting of the open market committee, at which a decision on monetary policy will be made. Some traders expect that the US central bank may decide to raise interest rates already during the January meeting, without postponing this issue until March. A reduction in the Fed's balance sheet will also be announced. The COT report for January 18 indicated that long non-commercial positions increased from the level of 30,506 to the level of 39,760, while short non-commercial positions decreased from the level of 59,672 to the level of 40,007. This led to a change in the negative non-commercial net position from -29,166 to -247. The weekly closing price rose from 1.3579 to 1.3647.
Signals of indicators:
Trading is conducted below 30 and 50 daily moving averages, which indicates a further decline in the pound trend.
Note: The period and prices of moving averages are considered by the author on the hourly chart H1 and differ from the general definition of the classic daily moving averages on the daily chart D1.
In the case of growth, the average border of the indicator in the area of 1.3452 will act as resistance.
Description of indicators
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. The graph is marked in yellow.
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. The graph is marked in green.
- MACD indicator (Moving Average Convergence / Divergence - moving average convergence/divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-profit 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 the short and long positions of non-commercial traders.