To open long positions on GBP/USD, you need:
The British pound continues to experience growth problems after the Bank of England meeting last week. Monday was no exception. Let's take a look at the 5 minute chart and break down the entry points. It is clearly seen how the bulls are trying to break through and test the level of 1.3926, but there is no consolidation on it, after which the pair quickly returns down, forming a false breakout and an entry point for short positions. But even if you did not have time to enter on the first signal, after a while the bulls failed to rise above 1.3926, which creates an entry point for short positions. A similar story occured in the afternoon with the resistance at 1.3926. The bulls failed to rise above this level, and the unsuccessful test created another entry point into short positions. At the end of the day, the downward movement amounted to more than 50 points.
Before talking about further prospects for the GBP/USD movement, let's see what happened in the futures market and how the Commitment of Traders positions have changed. The Commitment of Traders (COT) report June 22 shows that long positions have significantly declined while short positions have increased. The report showed changes in the market after the Federal Reserve's meeting on monetary policy. A similar meeting from the Bank of England, which took place last week, only exacerbated the situation. Many traders were counting on a more proactive stance on interest rates and the bond purchase program from the central bank. But as we already know, as long as no serious inflationary pressures are noticed in the UK, the Bank of England is unlikely to rush to make changes. The spread of the Indian strain of the coronavirus in the UK creates additional difficulties with the full opening of the economy, so traders also do not find reasons for the pound's growth. The economy may show more modest results for the second quarter of 2021. Despite this, the best scenario is to buy the pound for every good decline against the US dollar. The COT report indicates that long non-commercial positions fell from 55,203 to 51,445, while short non-commercial positions, on the contrary, rose sharply from 23,033 to 33,518. As a result, the non-commercial net position decreased from 32,170 to 17 972. Last week's closing price changed significantly and amounted to 1.3924 against 1.4109.
Bulls missed another weekly low in today's Asian session and so far there is no reason to expect the pound to rise again. Today, data on lending in the UK is expected, which is unlikely to significantly support the British pound, so the whole emphasis will be shifted to the speech of the member of the Bank of England Andy Haldane, who is the only one in favor of curtailing stimulus measures, which may support the British pound in the morning. The bulls' main task for today is to regain control over the resistance at 1.3885, above which the moving averages pass, limiting the pair's upward potential. Only a breakthrough and consolidation at this level, followed by its test from top to bottom, creates a signal to open long positions in order to recover to the resistance of 1.3937, where again it will be possible to observe how active the bears are. A breakthrough of this area too will certainly lead the pair to the highs of 1.3978 and 1.4019, where I recommend taking profits. If the pressure on the pair persists further, then in this case, I recommend that you take your time with long positions. The optimal scenario will be long positions immediately, provided a false breakout is formed in the support area of 1.3833. I recommend buying GBP/USD on a rebound only from a larger low in the area of 1.3787, counting on an upward correction of 25-30 points within the day.
To open short positions on GBP/USD, you need:
As long as the bears control resistance at 1.3885, the pressure on the pair will remain. Forming the next false breakout there after receiving a disappointing report on lending in the UK will lead to forming a good signal to open short positions in continuation of the bearish trend that was formed at the end of last week. In this scenario, one can expect the GBP/USD to return to support at 1.3833 and then to renew the larger low at 1.3787, where I recommend taking profits. It is difficult for the pair to go beyond this area. If the bears are not active in the 1.3885 area, and we see the pound rising above this range after the speech of the chief economist of the Bank of England, it is best to postpone short positions until the resistance update at 1.3937, where you can open short positions in the pound immediately on a rebound, counting on a downward correction at 20 -25 points within the day. The next major resistance is seen at 1.3978.
Indicator signals:
Trading is carried out below 30 and 50 moving averages, which indicates a succeeding decline for the pound in the short term.
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 by the upper level of the indicator in the area of 1.3915. Surpassing the lower border of the indicator in the area of 1.3850 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.
