In the morning review, I turned your attention to 1.2500 and recommended making trading decisions with this level in focus. Now let's take a look at the 5-minute chart and try to reckon what has actually happened. The bulls managed to push the price above 1.2500 in the early hours of the New York session. All they had to do is to wait for the opposite test downward of this range. Sadly, I didn't see the implementation of this scenario. For this reason, I had to miss all GBP upward moves. A false breakout which is brewing up at about resistance of 1.2548 could be an excellent market entry point for short positions. For this, we need strong US economic data.
What is needed to open long positions on GBP/USD
The empty economic calendar supported GBP. The bulls retreated to lower levels where a new bullish wave is about to develop. Today in the second half of the day, traders are alert to important economic data on the US economy and a speech by a Fed policymaker. If Loretta Mester comes up with similar statements as her colleague James Bullard yesterday, the US dollar will again enjoy high demand. Nevertheless, an upbeat ADP employment report would clear up market sentiment. An increase in employment in the US private sector will push GDP/USD down in the second half of the day.
In this case, the buyers will have to defend 1.2500 from where the price spiked in the morning. A false breakout will generate a signal to open new long positions, bearing in mind an extension of the bullish trend that started in May. The price will rebound to the nearest resistance at 1.2548. The price has not been able to escape higher. We could expect the pair to spike on the condition of weak US economic data and if the price settles above 1.2548. The opposite test downwards will open the way to the high at 1.2596. Besides, the pair might update resistance of 1.2655 and 1.2709 where I recommend profit-taking. A more distant target is seen at 1.2755. In case GBP declines in the second half of the day and the buyers act sluggishly, the pair will come under selling pressure. This will push the price to 1.2460 which will negate the bullish momentum. So, I would advise you not to hurry up with long positions. It would be a good idea to enter the market after the false breakout. We could buy GBP/USD immediately at a dip from 1.2411 and lower at 1.2371, bearing in mind a 30-35 pips intraday correction.
What is needed to open short positions on GBP/USD
The bears protected 1.2548, but GBP has not come under strong selling pressure yet. It prompts an idea of its growth during the New York trade aiming to negate yesterday's down move in full. So, please be cautious with selling from 1.2548. We could find out the first signal to open short positions only after a false breakout in light of strong ADP employment data. In this case, we should reckon a downward correction and a retreat to 1.2500 where the price action began. A breakout and the opposite test of this level upwards will provide an extra signal to sell. Hence, GBP/USD will return down to 1.2460, opening the door to the low of 1.2411 where I recommend profit-taking. A more distant target will be the low at 1.2371 which will cancel the bulls market. Under the scenario of GBP/USD growth and in case the pair trades sluggishly at 1.2548, the price could spike again because the sellers' stop orders will be activated. In this case, I would recommend delaying short positions until 1.2596. We could sell GBP there only with a false breakout. We could open short positions immediately at a bounce off the high at 1.2566 or higher from 1.2709, bearing in mind a 30-35 pips decline intraday.
The COT report (Commitment of Traders) from May 24 logs contraction in long positions and growth of short ones. Nevertheless, the balance of trade forces remained basically the same. Despite notably GBP growth since mid-May, the market is still in the grips of the sellers. GBP/USD has recovered a bit amid the lack of fundamental data to which the pair gives a negative response recently and modest profit-taking from one-year lows. There are no other weighty reasons for GBP growth. The UK economy is on the verge of recession. Inflation has been printing historic highs. So has the cost of living in the Kingdom. The Bank of England is facing a dilemma. Despite all headwinds, Governor Andrew Bailey insists that the regulator is not going to give up monetary tightening. Market participants are speculating that the Federal Reserve might take a breather in the cycle of rate hikes in September 2022. Such rumors are putting pressure on the US dollar, allowing the sterling to gain ground. According to the COT report from May 24, the number of long non-commercial positions contracted by 667 to 25,936, whereas the number of short non-commercial positions grew by 454 to 106,308. As a result, the negative value of non-commercial net positions increased from -79,241 to -80,372. GBP/USD closed last week at 1.2481 against the closing price of 1.2511 a week ago.
Indicators' signals:Trading is carried out below the 30 and 50 daily moving averages. It means that the market is uncertain about a further trajectory.
Moving averagesNote: The period and prices of moving averages are considered by the author on the H1 hourly chart and differ from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger BandsIf GBP/USD grows, the indicator's upper border at 1.2548 will serve as resistance. Alternatively, if GBP weakens, the indicators' lower border at 1.2450 will serve as support.
Description of indicators Moving average (moving average, determines the current trend by smoothing out volatility and noise).
Period 50. It is marked yellow on the chart. Moving average (moving average, determines the current trend by smoothing out volatility and noise).
Period 30. It is marked green on the chart.
MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9 Bollinger Bands (Bollinger Bands). Period 20
Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
Long non-commercial positions represent the total long open position of non-commercial traders.
Short non-commercial positions represent the total short open position of non-commercial traders.
Total non-commercial net position is the difference between short and long positions of non-commercial traders.