To open long positions on GBP/USD, you need:
Several signals to enter the market were formed yesterday. Let's take a look at the 5-minute chart and break down all the entry points. In the morning, before the UK budget was announced, buyers of the pound tried to sustain the pair's growth. A breakout and consolidation above the 1.3969 level along with its test had created a signal to open long positions. There was no major upward movement, but the pound still gained 30 points. A signal to sell the pound appeared in the afternoon, when it became clear that Great Britain would increase measures to support the economy and increase the budget deficit. The upward test of the 1.3969 level created an excellent entry point for short positions. But there was no downward movement by more than 30 points in that area.
From a technical point of view, the nearest support and resistance levels were corrected. The strategy remains the same. The pound may strengthen in case we receive good data on construction activity in the UK. In this case, a breakout and consolidation above resistance at 1.3988 can create a convenient entry point. Being able to test this level from above will bring back long positions on GBP/USD for the purpose of returning the quote to a high like 1.4062, where I recommend taking profits. The succeeding target will be resistance at 1.4115. In case the pound falls in the first half of the day, then it is best to wait for the 1.3919 low to be tested and open long positions from there only if a false breakout is also formed in that area. If buyers are not active in the 1.3919 area, then I recommend postponing long positions until the 1.3849 low has been tested, counting on a rebound of 30-35 points within the day.
To open short positions on GBP/USD, you need:
The initial task of the bears is to form a false breakout in the resistance area of 1.3988. Such a scenario, along with weak data on the UK economy, can create a signal for opening short positions in anticipation of recommencing the bear market and pushing GBP/USD to fall to the 1.3919 area. Much will depend on this area. Being able to test it from the bottom up can create an additional point for entering short positions for the purpose of testing the 1.3849 level, where I recommend taking profits. If bears are not active in the 1.3988 area, then it is best not to rush to sell the pound. I recommend opening short positions immediately on a rebound but only from a high like 1.4062, counting on a downward correction of 30-35 points within the day. The next major resistance area is seen around 1.4115.
The Commitment of Traders (COT) report for February 23 revealed that short commercial positions decreased while long positions sharply increased. Bulls are active even in the area of annual highs, which only accelerates the upward trend. However, you need to understand that this report only considers prices before the pound started to fall in the middle of last week, so the picture is slightly different. In the medium term, the downward correction observed last week will only play into the hands of bulls. The anticipation of a quarantine rollback in March will support the pound, and so do new measures to help the UK population in the fight against the coronavirus pandemic, which will be announced by Treasury Secretary Rishi Sunak this week. Long non-commercial positions rose from 60,269 to 68,266. At the same time, short non-commercials fell from 38,102 to 37,288, which retains good prospects for the pound to continue its gains. As a result, the non-commercial net position rose to 30,978 from 22,167 a week earlier. The weekly closing price was 1.4067 against 1.3914. The observed downward correction in the pound will only attract new buyers.
Indicator signals:
Moving averages
Trading is carried out in the area of 30 and 50 moving averages, which indicates the sideways nature of the market.
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
A breakout of the upper border of the indicator in the 1.3988 area will lead to a new wave of growth for the pound. A breakout of the lower border of the indicator in the 1.3919 area 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.
