GBP/USD: plan for the US session on May 27 (analysis of morning trades)

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

In my morning forecast, I recommended making a decision based on the level of 1.4130 and opening short positions from it with the expectation of continuing the downward correction of the pair in the short term. Let's look at the 5-minute chart and talk about what happened. It is clear that in the first half of the day, the bulls are trying to get above the resistance of 1.4130. However, they fail. As a result, a false breakout and a sell signal for the pound are formed. However, at the time of writing, the pair went down only about 15 points and then returned to the level of 1.4130, for which an active struggle is now continuing.

Given that the technical picture of the pair did not change in the first half of the day, the trading scenario for the US session remains relevant. Given that the second half of the day is full of various fundamental data on the US economy, we primarily talk about the GDP report for the 1st quarter of this year. The volatility promises to be higher, which will allow the pair to get out of the side channel. The bulls still need to think about how to regain the resistance of 1.4130, which they failed to do in the first half of the day. A breakdown and a test of this level from top to bottom will lead to a signal to open new long positions in the continuation of the pair's growth with the immediate goal of returning to the resistance of 1.4172, where I recommend taking the profit. A further target will be the monthly high of 1.4229. In the scenario of a decline in the pound in the second half of the day, the bulls should show themselves in the area of 1.4080. The formation of a false breakout forms an excellent entry point in calculating the recovery of GBP/USD in the short term. If buyers do not show activity, and the GDP and labor market data are much better than economists' forecasts, the pressure on the pound may return. In this case, I do not recommend rushing to buy: the optimal scenario will be long positions for a rebound from a large low of 1.4017, based on an upward correction of 25-30 points within the day.

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

Sellers coped with the task of protecting the resistance of 1.4130 in the first half of the day, and as long as trading is conducted below this range, the market will remain under their control. Despite this, the objectives of the task for sellers are the same as in the first half of the day: if in the second half of the day, we again see the growth of the pound, the best option for opening short positions will be the next formation of a false breakout in the resistance area of 1.4130, where the moving averages are also passing, limiting the upward potential of the pair. Strong macroeconomic indicators in the US will put pressure on the pound, which in the short term will push GBP/USD to the support area of 1.4080, where I recommend taking the profits. A breakout and a test of this area from the bottom up will form an additional entry point for selling, which will collapse GBP/USD to the area of the minimum of 1.4017. In the scenario of the pound's growth in the first half of the day and the absence of bear activity in the area of 1.4130, it is best not to rush into short positions. I advise you to wait for the update of the maximum of 1.4172, from which you can sell the pound immediately for a rebound in the expectation of a downward correction of 20-25 points within the day.

Let me remind you that the COT reports (Commitment of Traders) for May 18 recorded a reduction in long positions and a slight increase in short ones. Insufficiently strong inflation in the UK allows the Bank of England committee members to adhere to an ultra-soft monetary policy, on which the further direction of the British pound now depends. The fight against COVID is over. No one remembers it in England, especially since the economy has been fully opening since the beginning of the summer, an excellent bullish boost for retail sales and inflation. Against this background, the upward potential of the pound remains relatively high. You need to wait for a little. Do not be surprised if there are further large drawdowns in GBP/USD to find the bottom and large static buyers.

Given that the fundamental data recently does not significantly affect the pair's direction, I recommend paying more attention to the statements of representatives of the Bank of England and its Governor, Andrew Bailey. The COT report shows that long non-profit positions declined from 64,947 to 63,027. However, this is more like profit-taking than abandoning long positions due to a change in market direction. At the same time, short non-profit positions rose from 36,771 to 38,127, bringing the non-profit net position down to 24,900 from 28,176 a week earlier. The closing price of last week did not change significantly and amounted to 1.41479 against 1.41308.

Signals of indicators:

Moving averages

Trading is conducted below the 30 and 50 daily averages, indicating that the pair's pressure remains.

Note: The period and prices of the moving averages are considered by the author on the hourly chart H1 and differ from the general definition of the classic daily moving averages on the daily chart D1.

Bollinger Bands

A break of the upper limit of the indicator in the area of 1.4130 will lead to a new wave of growth of the pound. A break of the lower limit in the area of 1.4100 will increase the pressure on the pound.

Description of indicators