GBP/USD: plan for the European session on April 4. COT reports. The active confrontation does not subside

On Friday, several excellent signals were formed to sell the pound, which helped to make good money. Let's look at the 5-minute chart and figure out the entry points. I paid attention to several levels in my morning forecast, but I could not reach them. Despite the weak report on activity in the UK manufacturing sector, which, although showed growth in March, was not as strong as many expected, volatility remained at a very low level, and the pound did not sharply fall. Considering that it did not come to the test of 1.3106 and 1.3142, no signals and entry points were also formed. In the afternoon, even before the release of data on the US labor market, two false breakouts were formed at 1.3142, which led to excellent sell signals for GBP/USD. As a result, it was possible to observe the fall of the pair to the area of 1.3106 – this is 35 points of profit. A breakthrough of 1.3106 and the reverse test from the bottom up after the data on the unemployment rate in the US gave another signal to sell the pound. As a result, the pair failed by more than 20 points.

To open long positions on GBP/USD, you need:

The report on the growth of the number of people employed in the US in the non-agricultural sector was not what many economists expected, although the unemployment rate fell to 3.6%, which corresponds to the full employment rate. This did not help the US dollar particularly, as everyone understands that a strong labor market will continue to create higher competition for jobs, forcing employers to raise wages and thereby pushing up inflation, which is already at 40-year highs. Today, although there are no important statistics for the UK, and most likely trading will continue within the horizontal channel with a slight advantage for the bears. You should only pay attention to the speeches of representatives of the Bank of England. High inflation remains the number one problem for the central bank, which is in no hurry to make more aggressive changes to its policy, thereby fearing to harm the already weakening economy. Speeches by Catherine L. Mann, a member of the ILC of the Bank of England, and Jon Cunliffe, Deputy Governor of the Bank of England for Financial Stability, will be of secondary importance. Much more important is what Bank of England Governor Andrew Bailey will say. While maintaining the dovish rhetoric, counting on the growth of the pound in the current conditions will not be the right decision. Protecting the 1.3102 support and a false breakout at this level will result in creating the first buy signal that can return GBP/USD to the 1.3142 area. Only a breakthrough and a test of this area from top to bottom can create an additional entry point for opening long positions, which will strengthen the bulls and open up the prospect of growth to the upper limit of 1.3173, where I recommend taking profits. The 1.3219 area will be a more distant target, but it will be quite difficult to get to this level in the current conditions. In case GBP/USD falls during the European session and traders are not active at 1.3102, it is best to postpone long positions to a larger level of 1.3071. I advise you to enter the market there only if there is a false breakout. You can buy GBP/USD immediately on a rebound from 1.3038, or even lower – in the area of 1.3003 and only counting on a correction of 30-35 points within the day.

To open short positions on GBP/USD, you need:

The bears were not particularly active on Friday, although they coped with the tasks assigned to them one hundred percent. This leaves a chance for a breakthrough of large support levels and for building a new downward trend. The more the pair is in the horizontal channel, the higher the chances of a further decline in the downward trend seen since March 23 this year. At the moment, trading is conducted in the area of moving averages, which indicates the lateral nature of the market and the active confrontation between bulls and bears. The primary task is to protect the 1.3142 range. Forming a false breakout at this level will provide an entry point to short positions in order to return the bear market and the subsequent decline of the pair to the area of 1.3102. We will have to fight for this level, since re-going beyond this range will lead to the demolition of a number of bulls' stop orders, which will bring GBP/USD to the lows: 1.3071 and 1.3038. The more distant target will be the 1.3003 area, where I recommend taking profits. If the pair grows during the European session and bears are weak at 1.3142, it is best to postpone short positions to 1.3173. I also advise you to open short positions there only in case of a false breakout. You can sell GBP/USD immediately for a rebound from the high of 1.3219, or even higher – from 1.3253, counting on the pair's rebound down by 30-35 points within the day.

I recommend for review:

The Commitment of Traders (COT) reports for March 22 revealed a sharp increase in short positions and only a slight strengthening of long ones. A number of statements made by representatives of the Federal Reserve last week had weighed on the British pound, which is already experiencing quite serious problems with growth due to problems in the economy, which have already led to a decline in the standard of living of households. Experts note that the situation will only worsen, as inflation risks, which mainly negatively affect the economy, are now quite difficult to assess. High energy prices and the geopolitical situation in Ukraine, together with a number of sanctions from the UK and other countries – all this will slow down the economy. The softer position of the governor of the Bank of England this week has already led to another sell-off of the British pound, which is likely to continue due to the lack of good news. The only thing the bulls can count on now is the positive results of the negotiations between the representatives of Russia and Ukraine and progress towards a settlement of the conflict. The COT report for March 22 indicated that long non-commercial positions rose from the level of 32,442 to the level of 32,753, while short non-commercial positions jumped from the level of 61,503 to the level of 69,997. This led to an increase in the negative value of the non-commercial net position from -29,061 to -37,244. The weekly closing price increased from 1.3010 to 1.3169.

Indicator signals:

Trading is conducted in the area of 30 and 50 moving averages, which indicates the lateral nature of the market.

Moving averages

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

In case of growth, the upper limit of the indicator around 1.3130 will act as resistance. In case the pound falls, the lower limit of the indicator in the area of 1.3085 will provide support.

Description of indicators