27.03.2023 09:18 AM
GBP/USD: trading plan for European session on March 27. COT report. GBP still has chance to rise

On Friday, traders received just one signal to enter the market. Let us take a look at the 5-minute chart to figure out what happened. Earlier, I asked you to pay attention to the level of 1.2284 to decide when to enter the market. A rise and a false breakout of this level led to a sell signal in the first part of the day, which caused a decline of more than 60 pips. In the second part of the day, there were no signals to enter the market.

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Conditions for opening long positions on GBP/USD:

Buyers of the pound sterling have a perfect chance to return control over the market. To do so, they should consolidate above 1.2246. The data on the UK retail sales and Andrew Bailey's speech are expected to support the British pound. The BoE's governor is likely to remind about the necessity of combating inflation, thus remaining stuck to the aggressive monetary policy. In this case, the pound sterling will get support. It will be wise to buy the asset after a decline and a false breakout near the closest support level of 1.2192 formed on Friday. In the event of this, the pound sterling will have a chance to return to the intermediate resistance level of 1.2246, where there are MAs. If the price consolidates at this level and then, downwardly tests it, the pair may show a rapid rise to the high of 1.2290, where bulls may face significant obstacles. A breakout of this level will allow the pair to climb to 1.2337, where it is better to lock in profits. If bulls fail to protect 1.2192, pressure on the pound sterling will return. In this case, sellers may form a downward trend. That is why, traders should remain cautious when opening long positions. It is better to go long only near the next support level of 1.2137 after a false breakout. It is also possible to buy the asset just after a bounce off the low of 1.2080, expecting a rise of 30-35 pips.

Conditions for opening short positions on GBP/USD:

Sellers have a chance to push the pound sterling lower. To do so, they should keep the price below 1.2246 for as long as possible. A false breakout at this level will give a perfect sell signal with the target at the nearest support level of 1.2192. At this level, buyers are likely to become active. A breakout and an upward test of 1.2192 will increase pressure on the pound sterling, giving a sell signal with the target at 1.2137. The farthest target is located at the low of 1.2080. The pair will be able to slide to this level only in case of the dovish rhetoric of Andrew Bailey. At this level, it is better to lock in profits. If the pound/dollar pair increases and bears fail to be active at 1.2246, buyers will regain control over the market, thus allowing the currency to reach a new high of 1.2290. Only a false breakout of this level will give a sell signal. Traders may also go short just after a rebound from the high of 1.2337, expecting a decline of 30-35 pips.

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COT report

According to the COT report from March 7, the number of both long and short positions increased. Notably, the data is of zero importance at the moment as it was relevant two weeks ago. The CFTC is still recovering after a cyberattack. It is better to wait for new reports. This week, not only the Federal Reserve but also the BoE will hold a meeting. Both central banks will take important decisions. It is expected that the BoE may remain stuck to its aggressive approach and increase the key rate since the current combat against inflation has not borne fruit yet. If the Fed loosens its monetary policy and the BoE does not, the pound sterling is likely to rise to new monthly highs. The latest COT report states that the number of short non-commercial positions increased by 7,549 to 49,111, while the number of long non-commercial positions jumped by 1,227 to 66,513, reducing the negative value of the non-commercial net position to -17,141 versus -21,416 a week earlier. The weekly closing price decreased to 1.1830 from 1.2112.

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Signals of indicators:

Moving Averages

Trading is performed near the 30- and 50-day moving averages, which points to a possible correction in the pair.

Note: The author considers the period and prices of moving averages on the one-hour chart which differs from the general definition of the classic daily moving averages on the daily chart.

Bollinger Bands

In case of a decline, the lower limit of the indicator located at 1.2210 will act as support.

Description of indicators

  • Moving average (a moving average determines the current trend by smoothing volatility and noise). The period is 50. It is marked in yellow on the chart.
  • Moving average (a moving average determines the current trend by smoothing volatility and noise). The period is 30. It is marked in green on the graph.
  • MACD indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). A fast EMA period is 12. A slow EMA period is 26. The SMA period is 9.
  • Bollinger Bands. The period is 20.
  • Non-profit speculative traders are individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
  • Long non-commercial positions are the total number of long positions opened by non-commercial traders.
  • Short non-commercial positions are the total number of short positions opened by non-commercial traders.
  • The total non-commercial net position is a difference in the number of short and long positions opened by non-commercial traders.
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