GBP/USD: the plan for the American session on May 16 (analysis of morning deals). The buyers of the pound coped with the task and defended 1.2222

In my morning forecast, I paid attention to the level of 1.2222 and recommended making decisions on entering the market. Let's look at the 5-minute chart and figure out what happened. The lack of statistics on the UK and the expected speech by the Governor of the Bank of England Andrew Bailey in the afternoon led to the 1.2222 test, where in the morning I advised to open long positions in the expectation of recovery of the pair, which happened. As a result of a false breakdown and a buy signal, the pair went up by more than 40 points, but we have not yet reached the planned resistance in the area of 1.2291. For the second half of the day, the technical picture has not changed in any way, nor has the strategy itself changed. And what were the entry points for the euro this morning?

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

The bulls masterfully defended 1.2222 and aimed at 1.2291. It will be quite difficult to break above this level, especially considering Andrew Bailey's scheduled performance today. His statements are unlikely to allow us to remain optimistic since no matter what he says, the reaction is expected to be negative - there are too many problems in the economy to be solved by a single change in interest rates. Let's also see what FOMC member John Williams will say today, who will deliver a speech in the middle of the North American session. If the pressure on the pound returns, I advise you to leave the emphasis on the morning support of 1.2222. Hawkish statements may lead to a decline in the pound in this area, but only the repeated formation of a false breakdown there, by analogy with what I discussed above, will give a signal to open long positions in the expectation of an upward correction and growth to the resistance of 1.2291. It is also possible to expect a sharper upward jerk of the pound, but only after weak statistics on the Empire Manufacturing manufacturing index. Fixing above 1.2291 with a reverse test from top to bottom will lead to a buy signal followed by a move to the area of 1.2343. I recommend fixing profits there. The more distant target will be the 1.2396 area. In the event of a further decline in the pound and the absence of buyers at 1.2222, most likely we will see another update of the annual lows and a sale in the area of 1.2161. I also advise you to enter the market there only if there is a false breakdown. You can buy GBP/USD immediately on a rebound from the minimum of 1.2122, or even lower - around 1.2074 and only to correct 30-35 points within a day.

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

Let me remind you that at the end of last week there was a rumor in the market that the Bank of England may suspend its campaign to raise rates, shifting the burden of responsibility to the Ministry of Finance and Chancellor of the Exchequer Rishi Sunak. If such measures, or even the option of considering such measures, are discussed today during Bailey's speech, the pound will fall to new annual lows. If you look at the chart, then in the current realities, it is the protection of 1.2291 that is an important strategy for sellers today. While trading is below this range, you can bet on a further fall of the pair. In the case of a spurt of the pound up after the US data, only the formation of a false breakdown at 1.2291 forms a sell signal. You can also count on a breakdown of the 1.2222 level, which the sellers failed to do in the first half of the day. A breakthrough and a reverse test from the bottom up of this range will lead to the formation of an additional sell signal that can collapse the pound to the next minimum of 1.2161, where I recommend fixing the profits. A more distant target will be the 1.2122 area. It is possible to hope for the implementation of this scenario only after the speeches of the Fed representatives and their more hawkish statements. With the option of GBP/USD growth and lack of activity at 1.2291, a new upward spurt may occur against the background of the demolition of stop orders. In this case, I advise you to postpone short positions to a larger resistance of 1.2343. I also advise you to open short positions there only in case of a false breakdown. It is possible to sell GBP/USD immediately for a rebound from 1.2396, counting on the pair's rebound down by 30-35 points within a day.

The COT report (Commitment of Traders) for May 3 recorded a reduction in both short and long positions, but the former turned out to be much smaller, which led to another increase in the negative delta. The fact that things are very bad in the UK economy, and the situation with a sharp increase in the cost of living is not changing for the better, makes investors rather cautious about the pound and what awaits it next. The monetary policy of the Federal Reserve System aimed at tightening the cost of borrowing will continue to support the US dollar, pushing the British pound lower and lower. The only thing that can be counted on now is a slight decrease in inflationary pressure in the United States, which may lead to an upward correction. The recent actions of the Bank of England to raise interest rates have not yet brought the desired result, as the policy remains very restrained in the face of high inflationary pressures observed in the UK. Considering that the governor of the Bank of England, Andrew Bailey, recently confirmed that the economy is moving towards recession, nothing good can be expected in the near future, as well as one cannot count on the strong growth of the pound. The situation will only worsen, as future inflation risks are now quite difficult to assess due to the difficult geopolitical situation, but the consumer price index will continue to grow in the coming months. The situation in the UK labor market, where employers are forced to fight for every employee by offering higher and higher wages, is also pushing inflation higher and higher. The COT report for May 3 indicated that long non-commercial positions decreased by 6,900 to the level of 33,536, while short non-commercial positions decreased by only 2,708 to the level of 107,349. This led to an increase in the negative value of the non-commercial net position from -69,621 to -73,813. The weekly closing price decreased from 1.2587 to 1.2490.

Signals of indicators:

Moving averages

Trading is just above 30 and 50 daily moving averages, which indicates an attempt by the bulls to compensate for last week's losses.

Note: The period and prices of 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

In the case of a decline, the lower limit of the indicator in the area of 1.2222 will act as support. In case of growth, the upper limit of the indicator around 1.2255 will act as resistance.

Description of indicators