Analysis of the pound/dollar pair
Yesterday, there were a lot of points to enter the market. The pair tested 1.3585 for the first time when the MACD indicator just began its upward movement from the zero level. Some time later, the pair tested this level again. Such movements of the price could have provided good signals to buy the pound sterling to continue the bullish rally seen this week. However, the lack of important statistical reports at the first part of the day prevented traders from using the signals. As a result, the pair inched up by 10-15 pips. In the middle of the European session, traders noticed a sell signal. When the price tested 1.3585, the MAD indicator was in the overbought area. However, sell orders from 1.3625 were not successful.
The US reports published yesterday failed to boost the US dollar and just capped the rise in the pound/dollar pair. Today, the market situation could be more attractive. The UK is going to disclose its retail sales data for January. The report is expected to push the British pound considerably higher. That is why it is recommended to follow scenario №1 and open buy positions. Strong data will point to the economic recovery. This is a really positive factor for the pound sterling especially amid the key interest rate hike. In the second part of the day, there will be no important news. The US will publish data on existing home sales and CB leading index. However, the reports will hardly influence the market situation since they are of minor importance. Meanwhile, speeches provided by John C. Williams and Lael Brainard may cause high volatility, thus leading to the sell-off of the pound/dollar pair during the US trade.
Buy signals
Scenario 1: today, it is possible to buy the British pound when the price reaches the entry point at 1.3624 (a green line) with the target at 1.3658 (a thick green line). When the price touches 1.3658, it is better to close buy positions and open sell orders, expecting a change of 15-20 pips. The pound sterling may show a rise only amid a jump in retail sales. Importantly, before opening buy positions make sure that the MACD indicator is above the zero level and is just starting rising from it.
Scenario 2: It is also possible to buy the pound sterling if it hits the level of 1.3603. At this moment, the MACD indicator should be in the oversold zone. This may cap the downward potential of the pair and cause the market reversal. The pair may climb to 1.3624 and 1.3658.
Sell signals
Scenario 1: today, traders may sell the British pound if the price touches 1.3603 (a red line), thus causing a rapid drop. The key target will be located at 1.3561, where it is better to leave the market and open buy positions, expecting an increase of 15-20 pips. Weak retail sales figures and hawkish announcements made by the US Fed could become good reasons to sell the British pound. Before opening sell orders, make sure that the MACD indicator is below the zero line and is just starting falling from it.
Scenario 2: it is also possible to sell the pound sterling if the price touches 1.3624. At this moment, the MACD indicator should be in the overbought zone to cap the upward potential of the pair. This, in turn, may lead to the market reversal. The pair may slide to 1.3603 and 1.3561.
What we see on the trading charts:
A thin green line is the entry price at which you can buy a trading instrument.
A thick green line is the estimated price where you can place a take-profit order or lock in profits by yourself, since the price will hardly go above this level.
A thin red line is the entry price at which you can sell the trading instrument.
A thick red line is the estimated price where you can place a take-profit order or lock in profits by yourself, since the price is unlikely to decline further.
The MACD indicator. When entering the market, it is important to take into account overbought and oversold zones.
Beginning traders should be very cautious when making decisions to enter the market. It is better to open positions ahead of the publication of important reports in order to avoid price fluctuations. If you decide to enter the market amid the news release, place stop orders to minimize losses. Otherwise, you may lose all your funds, especially if you do not use money management and trade big volumes.
Please remember that successful trading requires an accurate trading plan similar to the one described above. Knee-jerk decisions made amid the current market situation is a losing strategy of an intraday trader.