To open long positions on GBP/USD, you need:
Yesterday was a good enough day for trading the British pound, although it was not possible to catch the sharp upward movement in the pair in the afternoon. The statements by the representative of the Bank of England about the need to raise interest rates led to a sharp rise in the British pound, which allowed the pair to return to local highs. Up to this point, several sell signals have been generated. Let's take a look at the 5 minute chart and break down the entry points.
Back in the first half of the day, the bears formed a false breakout at the level of 1.4130 in continuation of the bearish trend observed this week, but, unfortunately, the pair did not significantly fall, and after a 15 point downward movement, the bulls still seized the initiative. Some time later, there was a sharp rise in the pound, which led the GBP/USD to the resistance area of 1.4172, where I advised selling the pair immediately on a rebound. From the entry point, the pound corrected by 20 points (and this was the main target of selling on the rebound), after which the growth continued. There were no other signals to enter the market.
The technical picture has undergone significant changes, and the bulls now clearly have all the prerequisites in order for the pound to keep on rising, reaching new local highs. However, the primary task of GBP/USD bulls is to control support at 1.4154 today, which was formed yesterday afternoon. There are also moving averages, playing on the side of the bulls. Considering that no important reports on the UK economy are expected in the first half of the day, the pressure on the pound may return. Only the formation of a false breakout at the level of 1.4154 generates a signal to open long positions in continuation of the bull market that we saw yesterday. In this scenario, one can again count on the resistance update at 1.4216. Its breakthrough and test from top to bottom will open a direct path for GBP/USD to the highs of 1.4264 and 1.4310, where I recommend taking profits. If the pressure on the pound returns, and the bulls are not active in the support area of 1.4154, then I recommend not to rush into long positions. The optimal scenario would be long positions immediately to a rebound from the 1.4102 low, or even lower - from the level of 1.4056, counting on an upward correction of 25-30 points within the day.
To open short positions on GBP/USD, you need:
If in the first half of the day we see the pound rise in continuation of the bullish momentum that we saw yesterday, the best option for opening short positions will be to form a false breakout in the resistance area of 1.4216. The absence of important fundamental statistics will be on the side of the GBP/USD bears, as the bulls need new benchmarks to break out a large local high, and yesterday's loud statements by the outgoing representative of the Bank of England this summer is clearly not enough to continue the upward trend. If the sell scenario comes true, the initial target will be the support at 1.4154, where the moving averages are. A breakthrough and a test of this area from the bottom up creates an additional entry point into short positions, which will plunge GBP/USD to the area of the 1.4102 low, where I recommend taking profits. In case the pound grows in the first half of the day and the bears are not active in the area of 1.4216, it is best not to rush to sell: I advise you to postpone short positions until the high of 1.4264 is renewed, from which you can open short positions immediately on a rebound, counting on a downward correction of 20-25 points within the day.
The Commitment of Traders (COT) reports for May 18 showed that long positions decreased while short ones slightly rose. Insufficiently strong inflation in Great Britain allows the members of the Bank of England committee to adhere to a super-soft monetary policy, on which the succeeding direction of the British pound now depends. The fight against Covid is over and no one really remembers it in England anymore, especially since the economy has opened completely since summer began, which is a good bullish impetus for retail sales and inflation. Against this background, the upward potential of the pound remains quite high, you just need to wait a bit. Do not be surprised if there are further large drawdowns in GBP/USD to find the bottom and large static buyers. Considering that the fundamental data has not greatly influenced the pair's direction lately, I recommend paying more attention to the statements of the representatives of the Bank of England and its Governor Andrew Bailey. The COT report indicated that long non-commercial positions were down 64,947 to 63,027, but this looks more like a profit taking than a rejection of long positions due to a change in market direction. At the same time, short non-commercial positions rose from 36,771 to 38,127, as a result of which the non-commercial net position fell to 24,900 from 28,176 a week earlier. Last week's closing price did not change significantly and amounted to 1.41479 against 1.41308.
Indicator signals:
Trading is carried out above 30 and 50 moving averages, which indicates an attempt by the bulls to continue the upward trend for the pair.
Moving averages
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
Growth will be limited in the area of the upper level of the indicator 1.4230. In case the pair falls, support will be provided by the lower border of the indicator in the area of 1.4130.
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.
