To open long positions on GBP/USD, you need:
Last Friday, the British pound generated a fairly large number of signals for entering the market. Let's take a look at the 5 minute chart and break down the entry points. In the first half of the day, a breakthrough and consolidation below the support 1.3827 and then its reverse test from the bottom up resulted in creating an excellent signal to sell the pound, after which the pair quickly fell below the support of 1.3802, showing more than 30 points of movement. Immediately after that, as in the previous day, the bulls quickly returned to the level of 1.3802, which led to forming a false breakout and creating a signal to buy the pound. After that, the pair shot up to the resistance of 1.3862, where I recommended opening short positions in my morning forecast. As a result, another move up by 60 points, and a reverse move down by another 30.
The afternoon was no less interesting. The pound's growth and a false breakout at 1.3827 after the the US sales report was published had led to an excellent entry point into short positions, which pushed GBP/USD to the area of a low like 1.3794. The breakout and test of this level from the bottom up created another sell signal, after which the pair fell another 25 points to the support area of 1.3771.
In regards to today's fundamental data, you need to pay attention to the speech of the member of the ILC of the Bank of England Jonathan Haskel. Last week, several representatives of the Bank of England said that it is necessary to think about curtailing the asset purchase program, and if Haskell speaks about it today, then the demand for the pound may return and we will see an active growth in the pair. Bulls need to carefully think of a way to stop this downward trend in the support area of 1.3743, as a succeeding downward trend may depend on this level. Forming a false breakout there generates a signal to open long positions in hopes that GBP/USD would recover to the resistance of 1.3771. A breakthrough and consolidation above this range with a reverse test from top to bottom will push the pound to the 1.3800 high, where I recommend taking profits. There are moving averages that play on the side of the bears, so it will not be so easy to rise above this range. The next target will be the high of 1.3827. If the bulls are not active in the 1.3743 area, then it is best to postpone long positions until the 1.3717 low has been updated, or buy GBP/USD immediately to bounce off support at 1.3696, counting on a 25-30 pips rebound within the day.
To open short positions on GBP/USD, you need:
The initial task of the bears is to protect the resistance at 1.3771. Forming a false breakout there, by analogy with the entry points that I analyzed above, generates a sell signal, which will increase the pressure on the pound and keep the market bearish. In this case, the immediate target will be support at 1.3743, around which a large number of orders of both bulls and bears will be focused on. Further prospects of the GBP/USD pair's decline depend on the breakdown of this level. Only a reverse test of 1.3743 from the bottom up will lead to forming a new entry point for short positions. Removal of stop orders of the bulls below this level will pull down the pair to a low like 1.3717, and then to support at 1.3696, where I recommend taking profits. If the bears are not active in the 1.3771 area, I recommend postponing short positions until the test of a larger high of 1.3800, where you can open short positions immediately on a rebound, counting on a downward correction of 25-30 points within the day.
The COT reports (Commitment of Traders) for July 6 showed that both long and short positions have increased, which resulted in a growth in the net position. Despite the weak fundamental data on the growth rate of UK GDP in May this year, the pound continues to be in demand after the correction that was observed during the June meeting of the US Federal Reserve. Traders are showing particular interest now after the major downward movement in GBP/USD, and the May data is not an obstacle to building up long positions, as everyone expects more robust economic growth in the summer, even despite the Indian strain of the coronavirus. However, the pound's growth may be limited not only due to a sharp increase in the incidence in the summer, but the fact that the British central bank will not rush to change the program for buying bonds is also a deterrent to the upward trend. Until serious inflationary pressures are noticed in the UK, the Bank of England is unlikely to rush to change its policy. Despite this, the best scenario is to buy the pound for every good decline against the US dollar. The COT report indicated that long non-commercial positions rose from 51,596 to 57,232, while short non-commercial positions increased from 33,873 to 35,329. As a result, the non-commercial net position increased from 17,723 to 21,903. Last week's closing price decreased and reached 1.3853 against 1.3878.
Indicator signals:
Trading is carried out below 30 and 50 moving averages, which indicates the existing pressure on the pound. It is better to trade with the newly formed trend.
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
In case the pound falls, support will be provided by the lower border of the indicator at 1.3725. If the pound rises, the average border of the indicator in the area of 1.3770 will act as a resistance.
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.
