In my morning article, I focused on the level of 1.3059 and recommended making decisions to enter the market, taking it into account. Let's observe the 5-minute chart and analyze it. The pound's sharp decline to this level and the immediate breakout confirmed a bear market. However, the GBP/USD pair did not manage to consolidate below this range again, there was no reverse bottom-up test of 1.3059. In the morning, buyers managed to increase their activity rapidly and reach the level of 1.3059, causing a reverse top-down test. It was considered a clear signal to buy the pound, counting on the upward correction. Consequently, the pair rose by more than 45 pips and tested the resistance at 1.3093. Taking into account the fact that the movement above this range was quite intensive, a reverse top-down test formed a buy signal. However, it resulted in losses as traders were not willing to buy at the current highs and the pair returned below 1.3093. In the afternoon, the technical picture changed a little. Besides, what were the euro's entry points this morning?
To open long positions in GBP/USD, you need:
The American session will definitely be very exciting due to the release of the Fed minutes. The minutes should influence the direction of the British pound. However, the fact that bulls broke through the lower boundary of the sideways channel from March 28 indicates that the buyers have long-term plans. The Fed minutes may provide additional clues about a more aggressive rollback of US monetary policy easing and a plan to fight the highest inflation rate in 40 years. A more aggressive strategy will maintain pressure on the pair causing a breakout of 1.3063. Therefore, this range will be the major focus of traders' attention in the afternoon. Only a false breakout will form the first buy signal that can return GBP/USD to the resistance 1.3105 generated during the European trading. A break and a top-down test of this area will form an additional entry point for long positions, which will strengthen the bulls and will provide a chance for rise to the area of 1.3134. Besides, this area is close to the upper border of the side channel 1.3163, where I recommend taking profits. A more distant target will be the level of 1.3192. However, it will be difficult to reach it under the current conditions. If the GBP/USD declines during the American session and traders lack activity at 1.3063, the bulls will likely leave the market. Therefore, I recommend not to buy the pair until the update of the next support at 1.3030. However, it is advisable to enter the market only in case of false breakout. It is possible to buy the GBP/USD pair immediately for a rebound from the level of 1.3001 or even lower near 1.2960, with a target of a 30-35 pips intraday correction.
To open short positions in GBP/USD, you need:
The bears strengthened today and updated weekly lows again. Therefore, the market is under their control even despite the current upward correction. The pound will face the pressure until trading is conducted below 1.3105. If the GBP/USD pair returns to 1.3105 in the afternoon, only a false break at this level as well as Patrick Harker and Janet Yellen's hawkish statements will cause a false breakout, being a signal for opening of new short positions with the target of declining to 1.3063. A break and a reverse bottom-up test of this range will remove bulls' morning stop orders. Consequently, the GBP/USD pair will fall to 1.3030 and 1.3001, where I recommend taking profits. A more distant target will be the level of 1.2960. In case the pair rises and lacks activity at 1.3105, trading will again return to the sideways channel with relative equilibrium. In this case, it is advisable to sell the pair at higher levels. Besides, the next resistance level is 1.3134. I recommend opening short positions there only in case of a false breakout. It is possible to sell the GBP/USD pair immediately for a rebound from the upper border of the channel at 1.3163 or even higher from 1.3192, counting on the pair's downward rebound of 30-35 pips within a day.
The COT-reports from March 29 recorded an increase of short positions and reduction of long positions. This indicates concerns about the state of the UK economy and the risks of high inflation, which is likely to further exacerbate the current crisis of British households. Experts note that the situation will worsen as inflation risks negatively affecting the economy in most cases, are now difficult to assess. Therefore, the Governor of the Bank of England's dovish stance looks inexpedient as it prevents buyers of risky assets from opening long positions on the pound taking into account a further increase in interest rates. Currently, the bulls can reckon on the positive outcome of the Russia-Ukraine peace talks and progress in resolving the conflict. Notably, the Fed's aggressive policy maintains further demand for the US dollar in view of the increased significant risks of economic recession in the second half of the year. The COT report from March 29 indicated that long non-commercial positions fell from 32,753 to 30,624, while short non-commercial positions jumped from 69,997 to 70,694. This led to an increase in the negative non-commercial net position from -37,244 to -40,070. The weekly closing price declined to 1.3099 against 1.3169.
Indicator Signals:
Moving averages.
Trading is conducted below the 30 and 50 day moving averages, indicating the bears are trying to take control of the market.
Note. The period and prices of moving averages are considered by the author on hourly chart H1 and differ from the common definition of classic daily moving averages on daily chart D1.
Bollinger Bands.
In case the GBP/USD pair declines, the lower boundary of the indicator is likely to provide support around 1.3050.
Description of indicators
Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart;Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart;MACD (Moving Average Convergence/Divergence - moving average convergence/divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9Bollinger Bands (Bollinger Bands). Period 20; Non-commercial traders are speculators, such as individual traders, hedge funds and large institutions, which use the futures market for speculative purposes and meet certain requirements;Long non-commercial positions represent the total long open position of non-commercial traders;Short non-commercial positions represent the total short open position of non-commercial traders;Total non-commercial net position is the difference between short and long positions of non-commercial traders.