FX.co ★ GBP/USD: trading plan for American session on March 15 (overview of morning trade). Bears defending resistance of 1.3942, pushing ahead with new downward wave

What is needed to open long positions on GBP/USD

In the first half of the day, GBP/USD generated an excellent sell signal. Now let's look at a 5-minute chart and figure out morning deals. The chart clearly indicates that after a failed attempt to break above 1.3942, the bears made a fake breakout. This formed a signal to open short positions in view of a further downtrend which was going on at the end of the last trading week. While the pair is trading below this level, the bears are holding the upper hand in the market.

The technical picture looks the same in the second half of the day. Besides, trading tasks are also the same. The empty economic calendar calms down market volatility. In case GBP/USD declines, only a fake breakout at near support of 1.3882 will make an entry point for long positions, bearing in mind an upward correction. However, the bulls have to break above resistance of 1.3942 to ensure a larger climb. 1.3942 is the level, where moving averages are passing, playing in favor of the pound bears. Only in case the price fixes above this level, the pair will create an entry point with long positions, reckoning a bounce back to 1.4000 where I recommend profit taking. If the scenario of a GBP decline in the second half of the day comes into play and the bulls lack activity at near 1.3882, it would be better not to rush buying the currency pair. The best idea would be to open long positions on GBP/USD immediately at a bounce off the major support of 1.3830, bearing in mind an upward correction of 25-30 pips intraday.

What is needed to open short positions on GBP/USD

The bears have already fulfilled the first task and retained control over resistance of 1.3942. A fake breakout there generated a signal to open short positions. While the pair is trading below that area, the sterling is set to trade under growing pressure. Support of 1.3882 serves as the nearest target of the bears. A breakout of this level and its test upwards will create an extra entry point for short positions with the target at a local low of 1.3830 where I recommend profit taking. In case the bears lack activity at around resistance of 1.3942 and the price fails to retreat to that level, it would be better not to rush selling GBP/USD. Short positions could be opened immediately at a drop off a local high of 1.4000, bearing in mind a downward 30-35 pips correction intraday. The next large resistance is seen at about 1.4062.

Let me remind you that the COT report (Commitment of Traders) from March 2 logged contraction in both short and long non-commercial positions. Traders mainly preferred to close short positions that created a positive delta. Meanwhile, the US dollar receives a boost from soaring yields of US Treasuries. Nevertheless, the pound buyers will be able to enter the market during a correction in the medium term, they will be able to buy GBP/USD at more attractive quotes.

The sterling finds support from expectations of easing lockdown measures this March. Besides, recently Chancellor of the Exchequer Rishi Sunak unveiled a new relief program to the British population amid the pandemic.

Long non-commercial positions contracted from 68,266 to 65,138. At the same time, short non-commercial positions decreased from 37,288 to 29,056 which promises nice bullish prospects to the sterling. As a result, non-commercial net positions increased to 36,082 against 30,978 a week ago. GBP/USD closed the trading week at 1.3928 versus 1.4067 in the previous week. The ongoing downward correction is expected to attract new buyers.

Signals of technical indicators

Moving averages

The pair is trading slightly below 30- and 50-period moving averages. It indicates that the bears are determined to regain control over the market.

Remark. The author is analyzing a period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.

Bollinger Bands

In case the currency pair climbs, the indicator's middle border of about 1.3965 will serve as resistance.

Definitions of technical indicators

• Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart.
• Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is displayed as the green line.
• MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal line".
• Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average.
• Non-commercial traders - speculators such as retail traders, hedge funds and large institutions who use the futures market for speculative purposes and meet certain requirements.
• Non-commercial long positions represent the total long open position of non-commercial traders.
• Non-commercial short positions represent the total short open position of non-commercial traders.
• The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.