To open long positions on GBP/USD, you need:
The pound has stopped falling against the dollar at the end of last week, which clearly indicates a pause that GBP/USD buyers can take advantage of in order to regain control of the market. However, it is still very early to say that the bears have retreated. Everyone is waiting for new fundamental reports on the UK and a decision by the authorities to abolish quarantine and isolation measures, which will lead to greater activity of the population and a sharp increase in the service sector.
Before examining the technical picture of the pound, let's take a look at what happened in the futures market. The pound is still in demand only due to the sharp decline in short positions, although the weekly closing price of the pair was lower. Traders take losses and close short positions after the pound has slightly fallen from its highs. The Commitment of Traders (COT) report for March 2 reduction in both short and long commercial positions. Closing short positions turned out to be stronger, which led to an increase in the positive delta. And although the growth in the yield of US bonds is providing serious support to the US dollar at the moment, in the medium term, bulls can only use the pair's correction in order to enter the market at more attractive prices. The anticipation of a quarantine rollback in March this year will support the pound, so will new measures to help the UK population in the fight against the coronavirus pandemic, recently announced by Treasury Secretary Rishi Sunak. Long non-commercial positions declined from 68,266 to 65,138. At the same time, short non-commercials fell from 37,288 to 29,056, which retains good prospects for the pound's succeeding growth. As a result, the non-commercial net position rose to 36,082 from 30,978 a week earlier. The weekly closing price was 13,928 against 14,067. The downward correction in the pound will attract new buyers.
As for the technical forecast, the initial task of those who choose to buy the pound is to return and settle at the resistance of 1.3860, which the bulls missed last Friday. Considering that trading is now being carried out in the area of the moving averages, being able to test this level from top to bottom can create a signal for opening long positions in hopes to form an upward correction, which will open a direct way to the high of 1.3931, where I recommend taking profits. The next target will be 1.3995, however, we can't reach it without a new batch of good fundamental reports. If the downward correction of GBP/USD continues this morning, then it is best not to rush to buy, but wait for a false breakout in the area of the lower border of the horizontal channel at 1.3796, which was formed yesterday. If buyers are not active, then I recommend waiting for the 1.3732 low to be tested and buy the pound from there on a rebound, counting on an upward correction of 25-30 points within the day. The more the pound falls, the more attractive it is for new buyers.
To open short positions on GBP/USD, you need:
Important fundamental reports will not be released today, and judging by the trend that was observed since the middle of last week, the pound may still be under pressure. Bears are in control of the market as long as trade is below the resistance of 1.3860. Forming a false breakout there in the first half of the day will return the pressure to the pair and lead to forming a new downward trend to the support area of 1.3796, on the breakdown of which the pair's succeeding direction depends. A breakout and being able to test this level from the bottom up creates another entry point into short positions for the purpose of pulling down GBP/USD so it can reach a low like 1.3732, where I recommend taking profits. In case the pair grows during the European session and bears are not active in the resistance area of 1.3860, then I recommend not to rush to sell, but to wait for the 1.3931 high to be updated. You can open short positions from there immediately on a rebound while counting on a downward correction of 30-35 points within the day. The next major resistance is seen only at 1.3995.
Indicator signals:
Moving averages
Trading is carried out in the area of 30 and 50 moving averages, which indicates a possible upward correction in the pair.
Note: The period and prices of moving averages are considered by the author on the H1 chart and differs from the general definition of the classic daily moving averages on the D1 daily chart.
Bollinger Bands
A breakout of the upper border of the indicator around 1.3850 will lead to a new wave of growth for the pound. A breakout of the lower boundary at 1.3796 will increase the pressure on the pair.
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.
