Analysis and tips on how to trade GBP/USD
The buy signal was confirmed when the price tested 1.2085 and the MACD just started to move up from zero. Eventually, the price rose by about 40 pips and ran into the mark of 1.2125, where the pair should have been sold on a bounce. A downward correction was about 20 pips. No other signals were made because GBP skyrocketed on US inflation data.
The interview of Huw Pill, an MPC member at the Bank of England, had no influence on the market yesterday. A sharp rise in GBP came after the release of the US inflation report that logged a slowdown in consumer prices, which means the Federal Reserve may slacken the pace of monetary tightening already this fall. If it happens, risk assets, such as EUR and GBP, will show growth. Today, the United Kingdom will see the results of the RICS UK Residential Market Survey on net balance. Anyway, these figures will hardly support the pound. Demand will most likely remain high after yesterday's rally. The United States will present its PPI statistics for July. A decline in figures could boost GBP, making a buy signal. Weekly jobless claims will be of little interest to the market. In light of record unemployment in the US, an insignificant change in the reading will hardly cause a surge in volatility.
Buy signal
Scenario 1: long positions could be opened today from the 1.2225 level (green line on the chart), with a target at 1.2272 (thick green line). Buy trades should be closed at around 1.2272 and sell trades opened, allowing a 30-35 pips correction in the opposite direction from the level. GBP is likely to extend growth as the new uptrend has emerged. Important: before buying the instrument, make sure the MACD is above zero and just starts moving up from this level.
Scenario 2: when the price reaches 1.2187 with the MACD being in the oversold zone at the moment, it will become possible to go long. This could limit the pair's downside potential and cause an upward reversal in the market. The quote may go either to 1.2225 or 1.2272.
Sell signal
Scenario 1: today, short positions could be considered when the price approaches the 1.2187 level (red line on the chart). If so, the pair may go down to the key target at 1.2128 where short positions should be closed and long ones opened, allowing a 20-25 pips correction in the opposite direction from the level. Pressure on the pound could mount should US PPI for July come in strong. Important! Before selling the instrument, make sure the MACD is below zero and just starts to move down from this level.
Scenario 2: likewise, GBP could be sold today when the price hits 1.2225 with the MACD being in the overbought zone. This could limit the pair's upside potential and lead to a downward reversal in the market. The quote may go either to 1.2187 or 1.2128.
Indicators on the chart:
The thin green line indicates a buy entry point.
The thick green line is the estimated price where you should place a take-profit order or close positions manually since the quote is unlikely to grow above this level.
The thin red line indicates a sell entry point.
The thick red line is the estimated price where you should place a take-profit order or close positions manually since the quote is unlikely to fall below this level.
MACD. When entering the market, it is important to pay attention to the overbought and oversold zones.
Remember that novice forex traders should be very careful when deciding to enter the market. Before the release of important fundamentals, you should stay out of the market in order to avoid sharp fluctuations in the rate. If you decide to trade during news releases, make sure to always place a stop-loss order to minimize losses. Without it, you may quickly lose your entire deposit, especially if you do not use money management but trade large volumes.
Remember that in order to succeed in the market, you should have a clear trading plan, like the one I presented above. Spontaneous decisions based on the current state of the market are a losing strategy for an intraday trader.
