FX.co ★ GBP/USD: plan for the US session on January 22 (analysis of morning trades)

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

The breakout of the support level of 1.3704, which occurred in the first half of the day, led to the formation of pressure on the British pound, and weak data on retail sales in the UK only increased the pressure on the pair. In the first half of the day, there was only one signal to buy the pound, as, after the breakout of the level of 1.3704, the reverse test did not take place, as a result of which I was forced to miss this entry point. As for the purchase, it did not bring the expected result, although the signal was quite clear. On the 5-minute chart, I highlighted the area where after forming a false breakout at the level of 1.3669, there was a reverse test from the top down of this level, which formed the entry point to long positions. It was not possible to wait for its implementation, as the trade curled around the level of 1.3669.

Given the nature of the market, the technical picture has changed slightly. The bulls need to defend the support of 1.3656, and only the formation of a false breakout on it will be a signal to open long positions in the expectation of an upward correction of the pair in the second half of the day. This may happen just after the release of fundamental data on the US economy. In this case, the bulls can expect the pound to recover to the resistance area of 1.3695, above which it will be difficult to break through, as there are moving averages that limit the upward potential. In the event of a further decline in the pound in the second half of the day, it is better not to rush to buy but to wait for the support update at 1.3624, from where you can open long positions immediately for a rebound to move up by 20-25 points within the day.

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

The bears have taken control of the market after disappointing UK retail sales data. However, total control will occur only if the sellers of the pound achieve a breakdown and consolidation below the support of 1.3656, the test of which from the bottom up forms an excellent signal to sell the pound with the main goal of reducing to the area of 1.3624, where I recommend fixing the profits. A further target will be the minimum of 1.3685, where a lot of buyers will be concentrated. In the scenario of an upward correction of GBP/USD in the second half of the day, do not rush to sell. The best option is to form a false breakout at the level of 1.3695, where the moving averages that play on the sellers' side also pass. If there is no activity at this level, I recommend selling the pound immediately for a rebound from the high of 1.3743, based on a downward correction of 25-30 points within the day.

Let me remind you that in the COT reports (Commitment of Traders) for January 12, the growth of long and short positions was recorded, but the first ones turned out to be more, which led to an increase in the delta. Long non-profit positions rose from the level of 35,526 to the level of 47,935. At the same time, the short non-profit increased from the level of 31,861 to the level of 34,993. It can be seen that there were much fewer sellers than there were new buyers. As a result, the non-profit net position increased to 12,942 from 3,665 a week earlier. All this suggests that traders continue to bet on the strengthening of the pound even in the face of a new strain of COVID-19, for which there is no vaccine yet. The demand for the pound is limited by quarantine measures in the UK, which will be lifted sooner or later after the situation with infections has stabilized. The recent failure of the Bank of England from the introduction of negative interest rates and the pound earlier this year – all of it brought many large and medium customers relying on the continuation of the bull market this spring.

Signals of indicators:

Moving averages

Trading is below 30 and 50 daily averages, which indicates a further downward correction of the pound.

Note: The period and prices of the moving averages are considered by the author on the hourly chart H1 and differ from the general definition of the classic daily moving averages on the daily chart D1.

Bollinger Bands

In the case of an upward correction, the average border of the indicator in the area of 1.3695 will act as a resistance.

Description of indicators

• Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. The graph is marked in yellow.
• Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. The graph is marked in green.
• MACD indicator (Moving Average Convergence / Divergence - moving average convergence / divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
• Bollinger Bands (Bollinger Bands). Period 20
• Non-profit speculative traders, such as individual traders, hedge funds, and large institutions that 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 the short and long positions of non-commercial traders.