Yesterday, there were a lot of strong signals to enter the market. Let's take a look at the 5-minute chart and sort out all the trades. Despite upbeat data on activity in the manufacturing and services sectors of the United Kingdom, in the first half of the day, the pound sterling continued to trade under pressure, and all attempts of bulls to take the lead in the market failed. An unsuccessful attempt to break below 1.3380 led to a false breakout, thus creating a buy signal. As a result, the British pound advanced by 30 pips. Later, bulls made another attempt to defend that range, which also resulted in a buy signal, but the pound's upward movement was insignificant. This suggested that bears continued mounting pressure. Therefore, I decided that it would be a wise decision to wait for the PMI data. However, statistics failed to support the sterling. A breakout and a reverse test of 1.3380 from bottom to top formed a strong sell signal, which brought about 40 pips in profit. In the second half of the day, the price formed a false breakout at the level of 1.3354, which made it possible to open long positions and earn about 30 pips.
Today's macroeconomic calendar is bereft of any important releases from the UK that could have an impact on the pound's dynamics. Thus, bulls will most likely try to take advantage of this and drive the pair into an upward correction. Much will depend on the spread of COVID-19. If the situation gets worse, the British pound will come under pressure again. However, buyers have a chance to regain control of the market. To do this, they need to protect the support level of 1.3344. A false breakout at this level will be the first signal to open long positions in order to return the price to the resistance level of 1.3386. There are moving averages at this level, so it will not be easy to get out of this range. A breakout and test of this area from top to bottom will open the way to the high of 1.3446, which will be the first sign of an upward correction. The next target will be the level 1.3494, where I recommend locking in profits. In the second half of the day, the pair may extend gains after data on GDP in the United States is released and the Fed reports the minutes from its recent meeting. If the pair declines in the first half of the day and bulls' trading activity turns out to be subdued at 1.3344, pressure on the pound could increase. In this case, I recommend opening new long positions only following a false breakout in the 1.3308 area. Long positions on GBP/USD on a rebound can be considered from the low of 1.3254 or the support level of 1.3193, counting on an intraday correction of 25-30 pips.
Short positions on GBP/USDFor now, bears do not have strength to regain control of the market. Therefore, they will wait for the news on coronavirus cases in the EU countries and statistics from the United States. In this situation, the best way to sell GBP/USD is to wait for a false breakout at the level of 1.3386, with moving averages favoring sellers. This will create a new sell signal, and the quotes will most likely decline to the 1.3344 area, on which much depends today. A breakout of this level and a reverse test from bottom to top will lead to an additional signal to open new short positions with a view to dragging the price down to the lows of 1.3308 and 1.3254, where I recommend locking in profits. The next target will be the area of 1.3193, but its test will be possible in case of upbeat data on US GDP and hawkish comments from the US Federal Reserve. If the pair gains in value during the European session and sellers' trading activity turns out to be subdued at the level of 1.3386, it would be a wise decision to postpone short positions until the price reaches the stronger resistance at 1.3446. I recommend opening short positions on a rebound from 1.3494 or a new high in the 1.3560 area, counting on an intraday downward correction of 20-25 pips.
Traders are recommended to read the following articles:
The COT report (Commitment of Traders) for November 16 showed a spike in short positions and a decrease in long ones. This led to an increase in the negative delta. Positive data on the UK labor market, increased inflationary pressures, and higher retail sales - all this supported the British pound last week and provided bulls with a chance to continue driving the pair up. However, amid the worsening coronavirus situation in Europe and the statements of representatives of the Bank of England that the regulator was in no hurry to change its monetary policy, the pound/dollar pair came under pressure again. Another important concern remains the unresolved issue around the Northern Ireland protocol, which the UK authorities are planning to suspend in the near future. In this regard, the European Union is preparing to introduce certain countermeasures, which is also weighing on the British pound. At the same time, the United States is suffering from a rise in inflation and there are talks about the need for an earlier interest rate hike next year, which is providing significant support to the US dollar. However, I recommend sticking to the strategy of buying the pair in case of steep falls, for example, amid uncertainty over the central bank's policy. The COT report indicated that the number of non-commercial long positions declined to 50,443 from 54,004, while non-commercial short ones rose to 82,042 from 66,097. This led to an increase in the negative non-commercial net position: delta was -31,599 against -12,093 against a week earlier. Due to the Bank of England's policy, the weekly closing price collapsed to 1.3410 from 1.3563.
Indicator signals:
Moving averages
The GBP/USD pair is trading below 30- and 50-day moving averages, which indicates that bears are trying to continue the downtrend.
Note: The period and prices of moving averages are considered on the hourly chart and differs from the general definition of the classic daily moving averages on the daily chart.
Bollinger Bands
A breakout of the upper boundary at 1.3386 will lead to a new wave of gains in the British pound. If the price breaks through the lower boundary of the indicator, the area of 1.3345, it will come under stronger pressure.
Description of indicators:
Moving average (determines the current trend by smoothing volatility and noise). Period 50. Marked in yellow on the chart. Moving average (determines the current trend by smoothing volatility and noise). Period 30. Marked in green on the chart. MACD indicator (Moving Average Convergence/Divergence). The 12- and 26-period EMAs. The 9-period SMA. Bollinger Bands. Period 20 Non-commercial traders are speculators, including individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements. Non-commercial long positions refer to the total long open position held by non-commercial traders. Non-commercial short positions refer to the total short open position held by non-commercial traders. The total non-commercial net position is the difference between short and long positions held by non-commercial traders.