In my forecast this morning I drew your attention to the level of 1.2574 and recommended entering the market from it. Let's have a look at the 5-minute chart and see where and how you can enter the market. The rise to 1.2574 and the formation of a false breakout at this level created a good sell signal for the pound. However, the downtrend was about 20 pips, and bulls managed to push above 1.2574. As you can see on the chart, bulls failed to keep control over 1.2574, and the top/bottom test was carried out together with the breakthrough and return below 1.2574. However, this gave no buy signals. Considering all the above, it was necessary to review the technical picture and the nearest levels.
Long positions on GBP/USD:
The lack of statistics in the UK helped the pound. Currently, the buyers will be focused on the new support at 1.2550 in the second half of the day. I think that this level will be the main target in case of the pair's decline after the speech of FOMC member Rafael Bostic. Only the false breakout at this level may give a signal for opening long positions, which will encourage bullish market growth towards the monthly highs at the resistance of 1.2623. You may expect a sharper rally in the pair, but only after the fixation above this level with a reverse top/bottom test, which is likely to trigger sellers' stop-loss orders and lead to the rise of GBP/USD to 1.2692 and 1.2765, where traders may take profits. The next target is located in the area of 1.2803. If the pair declines and buyers show weak activity at 1.2550, bulls may quickly give up, and this is likely to put more pressure on the pair. Therefore, it is better to postpone buying the pound. It is better to enter the market after a false breakout near 1.2500, where the moving averages are passing. The MAs are on the bulls' side. You may also buy the pair immediately on a rebound only from the lower boundary of the channel at 1.2453, or even lower near 1.2396, allowing an intraday correction of 30-35 pips.
Short positions on GBP/USD:
Taking into account that bears did their best during the European session, in the current situation only the protection of the resistance at 1.2623 will allow them to enter the market and try to push the pair back to 1.2550. A false breakout at 1.2623 will be the ideal entry point to open short positions against the trend, counting on a breakout and a consolidation below 1.2550. If bears tested 1.2550 without touching 1.2623, the buyers would try to continue the uptrend from this level. Only a breakout and a reverse test bottom/top at this level may form an additional signal for the opening of short positions, which can quickly return the pound to the area of 1.2500, opening the way to 1.2453, where traders can lock in profits. The next target is in the area of 1.2396, a test of which is likely to cancel the uptrend of the pair. However, it is unlikely that this scenario will come true without strong fundamental statistics in the US today. There are no important reports scheduled for today. If the GBP/USD pair continues to grow and we will see weak activity at 1.2623, there may be another surge and stop-orders triggering. In this case, it is better to postpone opening short positions until the pair reaches the next key resistance at 1.2692. I also recommend opening short positions there only in case of a false breakout. If you want to sell the GBP/USD immediately on the rebound, you can do it from the high of 1.2765, counting on an intraday downward movement by 30-35 pips.
The COT report for May 10 logged a reduction of long positions and another growth of short positions, which led to a further increase in the negative delta. The UK economy has several problems and a rather difficult situation with inflation are forcing investors to get rid of the British pound, which is seriously losing its attractiveness. Investors choose safe-haven assets and more profitable instruments. 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 Bank of England raised interest rates but it has not yet yielded the desired effect, and due to serious economic difficulties the regulator may suspend the normalization of the monetary policy. Investors are frightened by this scenario. As I noted, future inflation risks are now quite difficult to assess also because of the difficult geopolitical situation, but it is clear that the consumer price index will continue to rise in the coming months. The situation in the UK labor market, where employers have to fight for every worker by offering ever higher wages, is also pushing inflation higher. The COT report for May 10 indicated that long non-commercial positions declined by 4,067 to 29,469, while short non-commercials rose by 1,718 to 109,067. This led to an increase in the negative nonprofit net position to -79,598 from -73,813. The weekly closing price declined to 1.2313 from 1.2490.