What is needed to open long positions on GBP/USD
In my morning review, I turned attention to the level of 1.3859 where I recommended taking decisions on market entry. Now let's look at a 5-minute chart to figure out morning trades. It is clearly seen that the bulls made a failed attempt to break through the level of 1.3859. Afterwards, another test followed that created a fake breakout and generated a signal to open short positions. However, the pair did not make a nice downward move. By the middle of the trading day, the bulls insisted on a breakout so that the price fixed above resistance of 1.3859. Afterwards, that level was tested downwards. However, the time was not right to open long positions there, betting on an upward correction. On the chart, I highlighted the area which clearly shows that during a test of 1.3859, that level was broken downwards this time. This canceled the bullish scenario for a rapid advance of the sterling. At the moment of writing this article, the currency pair remained trading at around 1.3859, making uncertain borders of the trading range. Such developments enabled me to revise levels.
In the second half of the trading day, the economic calendar lacks macroeconomic data. So, the bulls could push ahead with an upward correction. The nearest target will be resistance at 1.3888. A bounce above could ensure a larger growth of GBP/USD. However, it would be better to open long positions from there only after a breakout and a test of that level downwards that will generate an excellent market entry point, aiming to hit a higher high after 1.3957 where I recommend profit taking. Importantly, moving averages are passing at around 1.3888 that restricts bullish momentum of GBP/USD. In case the currency pair declines in the second half of the trading day, the buyers' task will be to defend support of 1.3820. We didn't see the second test of support during the European session.
A fake breakout there generates a signal to open long positions predicting that an uptrend can resume there. Resistance of 1.3888 will serve as the nearest target. In case there is no price action at about support of 1.3820, it would be better to cancel long positions until a swing low of 1.3776 is tested. From there, we will be able to buy GBP/USD immediately at a dip bearing in mind an upward 30-35 pips correction intraday.
What is needed to open short positions on GBP/USD
In case the pair continues its growth in the second half of the day, the main task for the bears will be to protect resistance of 1.3888 where a fake breakout will create an excellent market entry point, reckoning a further downtrend which originated in the second half of the last trading week. In this case, the nearest target of the sellers will be support of 1.3820 which was tested by the bears during the Asian session. Only in case of a lower low, there will be a good signal to open short positions with prospects for a further downtrend to the low of 1.3776 where I recommend profit taking. Support of 1.3733 remains a more distant target. In case the bears lack activity at around resistance of 1.3888, I would recommend cancelling short positions until the next major level of 1.3053 is tested, from where we will be able to open short positions immediately at a bounce, reckoning a downward 30-35 pips correction intraday. The next key resistance is seen at near 1.3999.
Let me remind you that the COT report (Commitment of Traders) from March 9 logged contraction in both short and long commercial positions. This time, traders were poised to close long positions that lead to a decline in the positive delta. The main headwind for risky assets, including the pound sterling, is soaring yields of US Treasuries that provides the US dollar with serious support. However, in the medium term, GBP bulls will certainly take advantage of this situation to enter the market at more attractive prices. The UK authorities are scaling back lockdown measures starting from March. So, the sterling will receive a boost. Besides, another bullish factor for GBP is a new relief package to help the population survive through the pandemic crisis.
Long non-commercial positions fell from 65,138 to 61,271. At the same time, short non-commercial positions decreased from 29,056 to 27,360 that indicates a further decline of GBP/USD. As a result, the non-commercial net positions contracted to 33,911 from 36,083 a week ago. The currency pair closed that week at 1.3821 against 1.3928 on the previous week. The ongoing downward correction of GBP/USD is expected to lure new buyers.
Signals of technical indicators
Moving averages
The pair is trading at about 30- and 50-period moving averages. It indicates that GBP/USD maintains bearish momentum.
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 1.3888 will trigger a new bullish wave for GBP. In case the currency pair breaks the lower border at near 1.3820, this will intensify pressure on GBP.
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.