To open long positions on GBP/USD, you need:
Yesterday there were a lot of deals to enter the market. Let's take a look at the 5-minute chart and analyze all the entry points.
The pair did not reach the levels I mentioned in the morning. In this regard, no signals were formed to enter the market. The UK inflation report coincided with economists' forecasts, which caused the pound to slightly fall, as many traders were betting on a more active recovery in consumer prices, which, theoretically, could affect the plans of the Bank of England to amend the bond buying program.
The second half of the day was much more interesting: the bears tried to fall below the support 1.4147 three times, but each time this resulted in forming a false breakout and created a signal to open long positions. Movements to the upside brought in around 20 to 30 points of profit. The pair surpassed the 1.4147 level after the Federal Reserve minutes was published.
Important fundamental reports will not be released today and the pound will likely be under pressure. However, bulls are unlikely to quickly give up and their initial target for today is to rise above 1.4147, which they missed yesterday afternoon. A breakthrough and test of this level from top to bottom can create a signal for you to open new long positions in continuation of the upward trend with the goal of returning to the monthly high in the 1.4201 area, where I recommend taking profits. If you look at the chart, you will see that moving averages are passing just above 1.4147, limiting the upward potential of the pair. A breakthrough of 1.4201 will be affected by fundamental data coming out in the afternoon. If GBP/USD breaks out of 1.4201, the next major resistance will be seen at 1.4257. In case the pound falls in the first half of the day, the bulls should be present in the area of 1.4078, to which they did not reach yesterday. Forming a false breakout there creates an excellent entry point into continuing the upward trend. If the bulls are not active there, then the pound might be under pressure again, and the bears will continue to build a new downward channel. In this case, I do not recommend rushing into long positions: the optimal scenario would be long positions for a rebound from a large low like 1.4009, counting on an upward correction of 25-30 points within the day.
To open short positions on GBP/USD, you need:
If we see the pound rise in the first half of the day, then the best option for opening short positions will be to form a false breakout in the resistance area of 1.4147, above which the moving averages, playing on the side of the bears, pass. The statements of the Bank of England representatives are unlikely to have any significant impact on the pound's direction, so I expect a sharper decline to the support area of 1.4078. A breakthrough and test of this area from the bottom up will create an additional entry point into short positions, which will plunge GBP/USD to the area of a 1.4009 low, where I recommend taking profits. If the pound grows in the first half of the day and the bears are not active around 1.4147, it is best not to rush to sell. I advise you to postpone short positions until the high is renewed in the 1.4201 area, 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 11 revealed that both long and short positions have increased. All this happened against the background of a slight downward correction from the pair, which was fully won back after we received good indicators on the rate of contraction of the UK economy in the first quarter 2021. Last month's growth also gave investors hope that the British pound will continue to gain strength. And almost all quarantine restrictions will be lifted in the UK at the beginning of summer, given the good pace of vaccination against coronavirus, we can assume a sharp recovery in GDP in the second quarter of 2021, which will be the highest in the history of the indicator. Such news strengthens investor confidence in the British pound and its prospects. The COT report indicated that long non-commercial positions rose from 52,262 to 64,947. At the same time, short non-commercial positions increased from 32,414 to 36,771, resulting in a non-commercial net position increased to 28,176 from 19,848 a week earlier. Last week's closing price also jumped to 1.41308 against 1.39033.
Indicator signals:
Trading is carried out below 30 and 50 moving averages, which indicates a possibility that the downward correction will continue.
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
Surpassing the upper border of the indicator in the area of 1.4170 will lead to a new wave of growth for the pound. Surpassing the lower border of the indicator in the area of 1.4080 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.
