Before conducting technical analysis, let's take a look at what happened in the futures market. According to the Commitments of Traders (COT) report from April 25, there was an increase in both long and short positions. The Bank of England has nothing left to do but stay aggressive because it has not achieved any progress in fighting inflation lately. High interest rates will, in any case, provide support for the pound, which will remain in demand. Taking into account the current state of the US economy, a stronger pound against the dollar seems likely. The latest COT report showed that non-commercial short positions increased by 1,034 to 53,566, while non-commercial long positions jumped by 5,571 to the level of 59,405. This led to a surge in the non-commercial net position to 5,839 from 1,302 a week earlier. This has been the fifth weekly rise, confirming bullish market sentiment. The weekly closing price fell to 1.2421 from 1.2446.
To open long positions on GBP/USD:
Today, manufacturing business activity data will be released in the UK, which could affect the pound. Weak manufacturing activity will be yet another evidence that the Bank of England's aggressive policy is harming the economy, and the longer it continues, the harder it will be to get back on track.
For this reason, we should focus on the nearest support level of 1.2484, formed yesterday. If the data turns out to be worse than economists' forecasts, pressure on the pound will surely return, and buyers will have an excellent opportunity to show themselves. A false breakout at 1.2484 will make a signal to buy, targeting 1.2520, where the bearish moving averages are located. A breakout and a downside test of this range will generate an additional buy signal, targeting 1.2550. Without this level, GBP/USD buyers will find it difficult to take the market under their control. If there is a breakout through this range, we may see growth towards 1.2580, where profit-taking will take place.
In case of a fall in GBP/USD and the lack of bullish activity at 1.2484, pressure on the pound will remain strong. In this light, we may buy at 1.2447 after a false breakout and from 1.2413, allowing a bullish correction of 30-35 pips intraday.
To open short positions on GBP/USD:
Bears control the market. Bulls will likely attempt to break above resistance at 1.2520 in the first half of the day, especially if manufacturing business activity data comes upbeat. So, sellers need to defend this level. A false breakout at this level will generate a sell signal, targeting the nearest support at 1.2484, where active resistance is expected. A breakout and a retest of this range to the upside will create a sell entry point, targeting a high of 1.2447, and a new downtrend will begin. Another target stands around 1.2413, where I am going to lock in profit.
If GBP/USD rises and there is no bearish activity at 1.2520, which is also quite likely as bulls have the advantage in the medium term, the situation will stabilize after yesterday's decline, and bears will lose control over the market. In this case, only a false breakout around the next resistance at 1.2550 will produce a sell entry point, and the downtrend will continue. If there is no activity there, we may sell GBP/USD from 1.2580, allowing a 30-35 pips bearish correction intraday.
Indicator signals:
Moving averages
Trading is carried out below the area of the 30-day and 50-day moving averages, which indicates a bearish market.
Note: The period and prices of moving averages are viewed by the author on the hourly chart and differ from the general definition of classic daily moving averages on the daily chart.
Bollinger Bands
Resistance stands at 1.2540 in line with the upper band. Support is seen at 1.2465, in line with the lower band.
Indicator description:
Moving average (MA) determines the current trend by smoothing volatility and noise. Period 50. Colored yellow on the chart.Moving average (MA) determines the current trend by smoothing volatility and noise. Period 30. Colored green on the chart.Moving Average Convergence/Divergence (MACD). Fast EMA 12. Slow EMA 26. SMA 9.Bollinger Bands. Period 20Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.Long non-commercial positions are the total long position of non-commercial traders.Non-commercial short positions are the total short position of non-commercial traders.Total non-commercial net position is the difference between the short and long positions of non-commercial traders.