GBP/USD: plan for the European session on June 1. COT reports. Pound surpasses new highs, but will the bulls be strong enough to protect them?

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

Yesterday, several signals were formed to enter the market, but given the low trading volume and low market volatility, it was not possible to achieve normal movements in any of the parties. Let's look at the 5-minute chart and analyze the entry points. Even during the European session, the bulls managed to form a false breakout in the support area of 1.4175, where I advised you to buy the pair, but the upward growth was about 15 points, after which the pair returned back to the level of 1.4175. It seems that the bears took control of the market on the second attempt, which resulted in creating a signal to sell the pound, but nothing really happened there. A sharp upward movement in the second half of the day was stopped in the resistance area of 1.4216, where a false breakout was formed, but a good downward movement also did not occur.

Before examining the technical picture of the pound, let's take a look at what happened in the futures market. If a week earlier the shift took place in favor of the bears, then in this report, the bulls seized control of the market. The Commitment of Traders (COT) reports for May 25 showed that short positions decreased while long ones increased. Recent statements by representatives of the Bank of England that now is the time to think about curtailing support measures and raising interest rates surprised many traders, but this returned the demand for the British pound, and due to this, it managed to pull up the currency to annual highs. The pound was also supported by the news that from June 21 this year, the UK economy will be fully open and all restrictive measures due to Covid will be canceled. This will be a good bullish boost for retail sales and inflation. The upward potential of the pound will remain quite high amid this background, you just need to wait a little. The COT report indicates that long non-commercial positions increased from 63,027 to 64,193, but short non-commercial positions sharply decreased from 38,127 to 33,534, which indicates profit-taking and the bears leaving the market, after unsuccessful attempts to turn the market to their side. This is another advantage for the bulls and those who believe in the continuation of the medium-term upward trend. As a result, the non-commercial net position increased from 24,900 to 30,659. The closing price of last week did not change significantly and reached 1.41553 against 1.41479.

Today's main task is to maintain control of support at 1.4216, which was broken yesterday as resistance in the afternoon amid low volatility of the pair. It is quite possible that the UK's manufacturing activity report will be able to push the pound to rise today, and forming a false breakout at the level of 1.4216 creates another signal to open long positions in continuation of the bull market that we have been observing since the beginning of this year. In this scenario, one can count on an update of resistance at 1.4264. A breakthrough and test of this area from top to bottom will open a direct road to new annual highs around 1.4310, where I recommend taking profits. If the pound is under pressure again, and the bulls are not active in the support area at 1.4216, just below which the moving averages, playing on their side, pass, I recommend not to rush into long positions. You should remember that yesterday's exit above 1.4216 occurred in an "empty" market, and whether there will be bulls there is a big question. Therefore, a more optimal scenario would be long positions immediately on a rebound from the support of 1.4169, or even lower - from the level of 1.4137, counting on an upward correction of 25-30 points within the day.

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

The bears need to think of a way to regain control of support at 1.4216. However, for today, it is unlikely for us to expect a disappointing report on manufacturing activity in the UK, which could be a headache for the bears. So far, the bears have nothing to rely on. Only a breakthrough and consolidation below the level of 1.4216 with a reverse test of it from the bottom up can create a good entry point to short positions in hopes that the pair would return to support at 1.4169, but before that it is necessary to fall below the moving averages. The next target will be the 1.4137 level, where I recommend taking profits. If we see the pound further rise during the European session, then the bears will think of a way to defend resistance at 1.4264. Forming a false breakout there can create an entry point into short positions. If the bears are not active in this range, then it is best to refrain from selling until a large local high in the 1.4310 area is renewed, counting on a downward correction of 20-25 points within the day.

Indicator signals:

Trading is carried out above 30 and 50 moving averages, which indicates further growth of the pound along the trend.

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 1.4245 will lead to a continuation of the bullish trend. In case the pair falls, support will be provided by the lower border of the indicator in the area of 1.4165.

Description of indicators