In my morning forecast, I mentioned the level of 1.2362 and recommended making trading decisions based on it. Let's look at the 5-minute chart and analyze what happened there. The decline and the formation of a false breakout provided a buy signal for the pair, but the price didn't rise as expected. As a result, I exited the market with minimal losses after a repeated breakout at 1.2362 and trading around that level. The technical picture has changed for the second half of the day.
To open long positions on GBP/USD, the following is required:
Considering that the bears managed to reverse yesterday's gains completely, it is no longer appropriate to talk about the advantage of buyers. The Chicago PMI data and speeches by FOMC members Michelle Bowman and Patrick T. Harker will influence further market movements. Since traders no longer believe in a pause by the Federal Reserve, which seemed quite real just a week ago, hawkish statements from policymakers could lead to a new sell-off in GBP/USD.
For this reason, I am not counting on the level of 1.2348 in the second half of the day. However, I will look for buying opportunities on a subsequent decline into this range and the formation of a false breakout. All of this could lead to a jump in the pair towards the new resistance level of 1.2385, where the moving averages are located, favoring the sellers. A breakout and a retest from above to below this range will provide an additional signal to open long positions and strengthen the presence of bulls in the market, with a move towards 1.2423 in the middle of the week. The ultimate target will be around 1.2465, where I will take profits. In the scenario of a decline in the pound towards 1.2348 and a lack of activity from buyers, I will postpone entering the market until a minimum of 1.2312. I will also only consider buying GBP/USD on a false breakout. I plan to buy GBP/USD on a rebound only from the new monthly low of 1.2275, with a 30-35 point correction target within the day.
To open short positions on GBP/USD, the following is required:
The sellers have achieved their goals and aim to return to the monthly lows. This is quite possible, especially against a sharp decrease in demand for risk assets. In the second half of the day, sellers must experience the new resistance level of 1.2385, which the pair is heading towards. A false breakout there will give confidence to the bears and provide a sell signal with a downward movement towards the support level of 1.2348, formed in the first half of the day. A breakout and a retest from below to above this range will strengthen the bearish nature of the market, creating a signal to open short positions with a decline toward 1.2312. The ultimate target remains the new monthly low of 1.2275, where I will take profits. If GBP/USD rises and there is no activity at 1.2385 in the second half of the day, sellers' stop orders will come into play again, leading to an upward correction in the pair. In such a case, I will postpone selling until a test of the resistance at 1.2423. A false breakout there will be the entry point for short positions. I will sell GBP/USD on a rebound only from 1.2465 but with the expectation of a downward correction of 30-35 points within the day.
The COT (Commitment of Traders) report for May 23 showed a decrease in both long and short positions. Last week, the decline in the British pound continued, but judging by the reduction in positions of both sides, the change in the balance of power was minimal. The fear of a lack of agreement on the US debt limit and the onset of a recession forced traders to close positions, especially in the face of further uncertainty from the Bank of England regarding its monetary policy. According to the regulator's statements, there may be a pause in the interest rate hike cycle, but the inflationary pressure in the UK does not currently allow for it. The latest COT report mentioned that non-commercial short positions decreased by 7,181 to 57,614, while non-commercial long positions fell by 8,185 to the level of 69,203. This decreased the non-commercial net position to 11,059, compared to 12,593 the previous week. The weekly price declined and reached 1.2425 compared to 1.2495.
Indicator signals:
Moving averages.
Trading is taking place below the 30 and 50-day moving averages, indicating an attempt by bears to return to the market.
Note: The author considers the period and prices of the moving averages on the hourly chart (H1), which differs from the general definition of classical daily moving averages on the daily chart (D1).
Bollinger Bands
In case of a decline, the lower boundary of the indicator, around 1.2348, will act as support.
Description of indicators:
• Moving average (determines the current trend by smoothing out volatility and noise). Period 50. Marked in yellow on the chart.
• Moving average (determines the current trend by smoothing out volatility and noise). Period 30. Marked in green on the chart.
• MACD indicator (Moving Average Convergence/Divergence - measures the convergence or divergence of moving averages). Fast EMA period 12. Slow EMA period 26. SMA period 9.
• Bollinger Bands. Period 20.
• Non-commercial traders - speculators such as individual traders, hedge funds, and large institutions using the futures market for speculative purposes and meeting specific 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.
• The net non-commercial position is the difference between non-commercial traders' short and long positions.