GBP/USD: plan for the European session on May 27. COT reports. Bears aim for new lows around 1.4080 and 1.4017

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

Yesterday there were three signals to enter the market. Let's take a look at the 5-minute chart and analyze all the entry points.

In my morning forecast, I recommended making a decision based on the level of 1.4168 and opening short positions from it while expecting the downward correction to continue in the short term. In the first half of the day, we could see the bulls trying to rise above the resistance of 1.4168, but nothing good came of it. Forming a false breakout there resulted in creating a signal to open short positions, which returned the market to the side of the bears. The downward movement was about 40 points, but this movement ended.

The bears were also active after the pair recovered to the resistance of 1.4168 in the beginning of the US session, forming another false breakout and a signal to open short positions. As a result, the pair plunged into the area of the target level of 1.4118, where I recommended taking profits and opening long positions immediately on the rebound. The downward movement was 60. The rebound was not very large, about 10-15 points.

Now the technical picture of the pair has completely changed and we will have to make decisions from new levels. Important fundamental reports for the UK will not be released today, and the emphasis will shift to the afternoon, when the report on US GDP for the first quarter of this year will be published. The indicator is expected to revise for the better, which will support the dollar. During the European session, the bulls need to think of a way to regain resistance at 1.4130, just above which are the moving averages, playing on the side of the bears. A breakthrough and test of this level from top to bottom will lead to a signal to open new long positions in continuation of the pair's growth with the nearest goal of returning to the resistance of 1.4172, where I recommend taking profits. The next target will be the monthly high of 1.4229. In case the pound falls in the first half of the day, the bulls should be present in the area of 1.4080. Forming a false breakout there creates an excellent entry point for GBP/USD to recover in the short term. 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 like 1.4017, 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 1.4130, where the moving averages also pass, limiting the upward potential of the pair. The lack of important fundamental reports will continue to put pressure on the pound, as friction between the UK and the EU only increases due to compliance with the rules of the Brexit agreement. I am betting on short term declines in the 1.4080 support area in the morning. A breakthrough and test of this area from the bottom up will create an additional entry point into short positions, which will plunge GBP/USD to a low like 1.4017, where I recommend taking profits. In case the pound grows in the first half of the day and the bears are not active in the area of 1.4130, then it is best not to rush to sell. I advise you to postpone short positions until the high of 1.4172 is renewed, 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 below 30 and 50 moving averages, which maintains the downward potential of the British pound.

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 lower border of the indicator in the area of 1.4085 will increase the pressure on the pair. Growth will be limited in the area of the upper level of the indicator 1.4160.

Description of indicators