To open long positions on GBP/USD, you need:
Buyers of the pound managed to regain resistance at 1.3052 yesterday afternoon, however, they could not wait for a convenient entry point to enter long positions from there, since this level was not tested on the reverse side. The pound may continue to gain today as investors continue to ignore the bad news about the sharp rise in Covid-19 infections in the UK and the rather high likelihood of negative interest rates imposed by the Bank of England in the near future.
As for the GBP/USD pair's current picture, the bulls need to overcome the 1.3077 level in order to sustain growth. Only its breakout and consolidation forms a signal to open long positions, which can result in removing a number of sellers' stop orders and also strengthen the pair's upward trend to the high of 1.3154. The next goal is 1.3234, which is where I recommend taking profits. However, take note that we will receive quite an important data regarding the state of the UK labor market, which raises a lot of questions due to the state aid program. Therefore, we will not see the real picture this month either. But if the numbers deteriorate, the pressure on the pound will surely return. Therefore, in case the pair falls in the first half of the day, the emphasis will be placed on protecting the 1.3008 area, where the moving average is, which is now on the side of the pound buyers. Forming a false breakout there will be a signal to open long positions. If bulls are not active, I recommend not to rush to buy, but to wait for the test of the 1.2935 area and buy the pound there on a rebound, counting on a correction of 30-40 points within the day.
The Commitment of Traders (COT) report for October 6 showed a minimal increase in short non-commercial positions from 51,961 to 51,996. Long non-commercial positions slightly rose from 39,216 to 40,698. As a result, non-commercial net position remained negative and reached -11,298 against -12,745, which indicates that sellers of the pound retain control and also shows their slight advantage in the current situation. The higher the pair grows, the more attractive it is to sell.
To open short positions on GBP/USD, you need:
Sellers need to defend resistance at 1.3077, where forming a false breakout will be a signal to open short positions in the hope of regaining the bear market. However, a more important task is to get the pair to settle below support at 1.3008, where the moving averages also pass, since this will return the initiative to the bears and lead to forming a larger movement to the 1.2935 area, where I recommend taking profits. We can expect to implement this option if the data on the UK labor market turns out to be much worse than economists' forecasts. If the pound grows above resistance at 1.3077, it is better not to rush to sell, since the market may continue to implement the bullish momentum from last Friday. Most likely, the bears will resort to protecting resistance at 1.3154, or it will be possible to sell GBP/USD immediately on a rebound from the 1.3234 high, counting on a correction of 30-40 points within the day.
Trading is carried out in the area of 30 and 50 moving averages, which indicates a slowdown in bullish momentum.
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 classic daily moving averages on the D1 daily chart.
A breakout of the upper border of the indicator around 1.3077 will lead to a new wave of growth for the pound. A breakout of the lower border of the indicator around 1.3008 will increase the pressure on the pair.
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 indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-commercial 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 short and long positions of non-commercial traders.