GBP/USD: plan for the European session on May 26. COT reports. Another conflict between Great Britain and the EU weighs on the British pound

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

Yesterday was a profitable day for trading the British pound. Let's take a look at the 5-minute chart and break down all the entry points to the market.

In my morning forecast, I recommended making a decision based on the level of 1.4201 and advised you to open short positions from it while expecting a market reversal in the short term. You could clearly see the bulls trying to rise above the resistance of 1.4201 in the first half of the day, but nothing good came of it. Forming a false breakout there resulted in creating a signal to open short positions, which returned control of the market over to the bears.

By the beginning of the US session, the pair reached the target value of 1.4141, which brought about 60 points of profit. After some time, a breakthrough and a reverse test of the level 1.4141 took place, which resulted in creating a good entry point for opening short positions in continuation of the downward trend. Although there was no big sale, the pair went down another 20 points, having achieved the renewal of the next local low.

At the moment, the technical picture of the pair has completely changed and we will have to make decisions from new levels. Important fundamental statistics from the UK will not be published today, and most likely, the pound will still be under pressure. But the bulls are unlikely to quickly give up, and their task for the first half of the day is to rise above the 1.4168 level. A breakthrough and test of this level from top to bottom can create a signal for you to open new long positions in continuation of the upward trend, with the immediate goal of returning to the monthly high in the 1.4209 area, where I recommend taking profits. The next target will be the 1.4253 level. If you look at the chart, you will see that the pair is trading in the area of the moving averages, which indicates more of the succeeding sideways nature of the market. However, a breakthrough could result in a larger upward correction for the pair. If GBP/USD breaks out of 1.4253, the next major resistance will be seen in the 1.4310 area. In case the pound falls in the first half of the day, the bulls should be present in the area of 1.4118. Forming a false breakout there creates an excellent entry point into sustaining the upward trend. If the bulls are not active there, then the pound might be under pressure, and the bears will continue to build a new downward channel. In this case, I do not recommend rushing into long positions: the optimal scenario would be long positions for a rebound from a large low of 1.4041, counting on an upward correction of 25-30 points within the day.

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

If the pound rises in the first half of the day, then the best option for opening short positions will be when a false breakout forms in the resistance area of 1.4168. The lack of important fundamental statistics and yesterday's disagreements between the UK and the EU over compliance with the rules of the Brexit agreement may further push the British pound down. Therefore, I expect a larger decline to the support area of 1.4118 in the first half of the day. A breakthrough and test of this area from the bottom up (by analogy with the trade that I analyzed above) can create an additional entry point into short positions, which will sharply pull down GBP/USD to the area of a low like 1.4041, where I recommend taking profits. If the pound rises in the first half of the day and the bears are not active around 1.4168, then it is best not to rush to sell. I advise you to refrain from short positions until the high is renewed in the 1.4209 area, from which you can open short positions immediately on a rebound, counting on a downward correction of 20-25 points within the day.

The Commitment of Traders (COT) reports for May 18 showed that long positions decreased while short ones slightly rose. Insufficiently strong inflation in Great Britain allows the members of the Bank of England committee to adhere to a super-soft monetary policy, on which the succeeding direction of the British pound now depends. The fight against Covid is over and no one really remembers it in England anymore, especially since the economy has opened completely since summer began, which is a good bullish impetus for retail sales and inflation. Against this background, the upward potential of the pound remains quite high, you just need to wait a bit. Do not be surprised if there are further large drawdowns in GBP/USD to find the bottom and large static buyers. Considering that the fundamental data has not greatly influenced the pair's direction lately, I recommend paying more attention to the statements of the representatives of the Bank of England and its Governor Andrew Bailey. The COT report indicated that long non-commercial positions were down 64,947 to 63,027, but this looks more like a profit taking than a rejection of long positions due to a change in market direction. At the same time, short non-commercial positions rose from 36,771 to 38,127, as a result of which the non-commercial net position fell to 24,900 from 28,176 a week earlier. Last week's closing price did not change significantly and amounted to 1.41479 against 1.41308.

Indicator signals:

Trading is carried out in the area of 30 and 50 moving averages, which indicates the sideways nature of the market in the short term.

Moving averages

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 the classic daily moving averages on the daily D1 chart.

Bollinger Bands

Surpassing the upper border of the indicator in the area of 1.4175 will lead to a new wave of growth for the pound. Surpassing the lower border of the indicator in the area of 1.4118 will increase the pressure on the pair.

Description of indicators