What is needed to open long positions on EUR/USD
In the first half of the trading day, the only interesting event that happened was the bulls' attempt to regain control over 1.3907. Let's look at a 5-minute chart and figure out how we could have acted. It is clear that after resistance of 1.3907 had been broken, the price returned to this level again. Unfortunately, the price undershot literally 5 pips to have a buy signal generated. So, traders will shift focus towards 1.3907 as a buy level in the second half of the trading day. The pair has not given any other signals because the price has not reached resistance identified in the morning.
The buyers coped well with the prior morning task. They enabled a breakout and fixation of the price above resistance of 1.3907. Now I'm waiting for this level to be tested from the opposite direction. Besides, I'm anticipating a signal for opening long positions, bearing in mind an upward correction. This scenario will open the door to a swing high of 1.3994 where I recommend profit taking. A more distant target is seen at 1.4062. However, that target is hard to reach without a portion of upbeat macroeconomic statistics. In case 1.3907 is tested and the buyers lack activity there (I means the pair could decline below 1.3907), it would be better not to rush buying GBP/USD. The best-case scenario will be opening long positions immediately at a bounce off key support of 1.3840, which has been undershot today. Once 1.3840 is tested, we can expect a bounce of 30-35 pips intraday. The next major support is predicted at near 1.3775.
What is needed to open short positions on GBP/USD
The bears have to regain their control over 1.3907 which they missed in the first half of the day. Only a test of this level upwards will generate a new signal to open short positions with the view to trading downwards. That will open the door to support of 1.3840 where I recommend profit taking. A breakout of this level will determine a further downtrend of GBP/USD. A breakout and a test of this level upwards will create another market entry point with short positions with a downward target of 1.3775. In case the pair continues its growth in the American session, I would recommend being careful about selling. It would be a good idea to wait for a higher high after 1.3994. Short positions could be opened immediately at a bounce, bearing in mind a 30-35 pips downward correction intraday. The next major resistance is expected at near 1.4062.
Let me remind you that the COT report (Commitment of Traders) from February 23 logged contraction in short non-commercial positions and a sharp increase in long ones. The bulls assert strength even at near one-year highs, thus reinforcing the uptrend. However, this COT report is based on those quotes recorded before the sterling's fall in the middle of the last week. Hence, the current picture is a bit different. In the medium term, GBP buyers benefited from the downward correction last week. The sterling finds support from expectations of lifting lockdown measures in March this year. Besides, the UK government is rolling out new relief measures to back the population in their struggle amid the pandemic. UK Chancellor of Exchequer Rishi Sunak is due to make an official statement this week.
Long non-commercial positions increased from 60,269 to 68,266. At the same time, short non-commercial positions declined from 38,102 to 37,288. This confirmed bullish prospects for the pound sterling. As a result, long net positions surged to 30,978 from 22,167 a week earlier. GBP/USD closed that week at 1.4067 against 1.3914. The ongoing downward correction of the currency pair will attract more buyers.
Signals of technical indicators
Moving averages
The pair is trading at about 30- and 50-period moving averages. It indicates that meanwhile the market is uncertain about a further direction.
Remark. The author is analyzing a period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.
Bollinger Bands
A breakout of the indicator's upper border at near 1.3946 will trigger a new bullish wave for GBP. In case the currency pair drops, the indicator's lower border of about 1.3856 will serve as support.
Definitions of technical indicators
Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart. Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is displayed as the green line. MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal line". Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average. Non-commercial traders - speculators such as retail traders, hedge funds and large institutions who use the futures market for speculative purposes and meet certain requirements. Non-commercial long positions represent the total long open position of non-commercial traders. Non-commercial short positions represent the total short open position of non-commercial traders. The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.