Yesterday, several interesting market entry signals were formed. Let's take a look at the 5-minute chart and see what happened. I paid attention to 1.2514 and 1.2549 in my morning forecast. The lack of statistics and a breakthrough of 1.2514 enabled us to count on a buy signal to form for the pound, which did not take long to form. The reverse downward test of 1.2514 gave an excellent signal to open long positions, which caused the pair to rise by more than 60 points. A similar consolidation and downward test of 1.2549 is also a buy signal. However, I did not expect a large increase. At the time of writing, the price has returned back to 1.2549, knocking the trade out to zero. In the afternoon, I waited for a correction and a false breakout at 1.2534, which made it possible for me to enter long positions, counting on the pound's succeeding growth, but after moving up by about 15 points, the pair was under pressure again, which knocked the trade to zero. There were no other entry points.
When to go long on GBP/USD:
Today, the pound has already fallen to last week's lows and it looks like it's not going to stop there. British Prime Minister Boris Johnson's victory puts serious pressure on the national currency and traders, apparently, do not see prospects in the near future. Poor data on the composite PMI index of the UK and the index of business activity in the services sector may lead to even more pressure on the pair, which will create an opportunity to break the lows. Forming a false breakout at 1.2460 and receiving a good report can create the first signal to open new long positions, counting on the resumption of the bullish trend. An equally important task is to regain control of the resistance at 1.2497. This will reduce the pressure on the pair and allow it to get out to 1.2534. A test of 1.2534 from top to bottom will be a good signal to buy in anticipation of an update of 1.2575, where I recommend taking profits.
If the pound falls and bulls are not active at 1.2460, the pressure on the pair will only increase. This will completely cross out the upward trend for the pair and open the way to 1.2411. For this reason, I advise you not to rush into long positions. It is best to enter the market after a false breakout at this level. You can buy GBP/USD immediately from 1.2371, or even lower - around 1.2331 with the goal of correcting 30-35 points within the day.
When to go short on GBP/USD:
The bears took advantage of the momentum and the turmoil in the political arena and, together with expectations of an aggressive policy from the Federal Reserve, pulled the pound further down in anticipation of breaking last week's lows. All they need now is to protect the nearest resistance at 1.2497. Forming a false breakout there, together with weak data on a slowdown in the growth of activity in the service sector, will provide a signal to open short positions, counting on building a new downward trend, which will happen after a breakthrough of 1.2460. Consolidation below 1.2460 and a reverse test from the bottom up of this range will create another sell signal, making it possible for GBP/USD to drop to the 1.2411 area, from which there is a direct road to 1.2371, where I recommend taking profits. A farther target would be a low of 1.2331, which would completely cancel out the bull market.
In case GBP/USD grows and traders are not active at 1.2497, an upward surge may occur amid bears' stop orders being dismantled. In this case, I advise you to postpone short positions until 1.2534. I advise you to sell the pound there in case of a false breakout. You can choose short positions immediately for a rebound at 1.2575, or even higher - from 1.2618, counting on the pair's rebound down by 30-35 points within the day.
COT report:
The Commitment of Traders (COT) report for May 24 showed that long positions decreased while short positions increased. However, this did not significantly affect the balance of power. Despite the pound's growth since the middle of this month, the market remains completely under the bears' control.
Apparently, only the absence of fundamental statistics, to which the pair has been reacting rather negatively lately, and a slight profit-taking from annual lows have enabled the GBP/USD to recover slightly. There are no other objective reasons for growth. The economy continues to slide into recession, inflation hits new records, and the cost of living in the UK is steadily rising. The Bank of England continues to rush between two fires, but despite all this, BoE Governor Andrew Bailey continues to say that the central bank is not going to refuse to raise interest rates yet. The widespread rumors that the US central bank plans to "pause" the cycle of raising interest rates in September this year continue to gain momentum, which puts some pressure on the US dollar and leads to the strengthening of the pound.
The COT report indicated that long non-commercial positions decreased by -667 to 25,936, while short non-commercial positions rose by 454 to 106,308. This led to an increase in the negative value of the non-commercial net position from -79,241 to -80,372. The weekly close rose from 1.2481 to 1.2511.
Indicator signals
Moving averages
Trading is below the 30 and 50-day moving averages, which indicates the bears' attempt to seize the initiative.
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
In case of a decline, the lower border of the indicator around 1.2460 will act as support. In case of growth, the area of 1.2575 will act as resistance.
Description of indicators
Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in 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 9Bollinger 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.