In my morning forecast, I mentioned the level of 1.2427 and recommended making trading decisions based on it. Let's look at the 5-minute chart and analyze what happened there. The breakthrough and subsequent retest from below to above 1.2427 gave an excellent selling signal after unsuccessful attempts by bulls to defend this range during the European session. As a result, the pair dropped nearly 30 points.
To open long positions on GBP/USD:
The news that the UK Construction PMI remained around 50 points did not help the pound to hold above 1.2427, which has brought pressure back to the pair, as observed when writing this article. Considering that there is no data from the US, the decline may continue, so I prefer to wait for a new support level to form at 1.2395, where bulls might assert themselves again. A false breakout there would provide a buying signal with the potential for the pair to rise towards the resistance area at 1.2425, formed during the first half of the day. Moving averages, which are currently playing on the bearish side, are also located in that area. Only a breakthrough and subsequent retest from above to below this range would give an additional signal to open long positions, strengthening the presence of bulls with a target of 1.2455 - today's high. The ultimate target would be around 1.2484, where I would take profit.
In the scenario of a pound decline towards 1.2395 and a lack of buyer activity, the pressure on the pair will increase. In that case, I will postpone market entry until the minimum at 1.2369. I would also consider opening long positions there only on a false breakout. I plan to buy GBP/USD on an immediate rebound only from 1.2340, with a 30-35 point correction target within the day.
To open short positions on GBP/USD:
Sellers have achieved their goal and pushed the pair to a new daily low. Bears will need strength in the second half of the day, especially if GBP/USD approaches 1.2425. I will consider short positions there only after a false breakout, which would allow a downward move toward the new support at 1.2395. A breakthrough and subsequent retest from below to above this range would strengthen the bearish sentiment in the market, nullifying the entire previous day's growth and providing a signal to open short positions with a decline towards 1.2369. The ultimate target remains at the minimum of 1.2340, where I would take profit.
If GBP/USD rises and there is no activity around 1.2425 in the second half of the day, sellers' stop orders will come into play, leading to an upward correction of the pair. In that case, I will postpone selling until a test of the resistance at 1.2455. A false breakout there would be the entry point for short positions. I plan to sell GBP/USD on an immediate rebound only from 1.2484 but with the expectation of a downward correction of the pair by 30-35 points within the day.
The COT report (Commitment of Traders) as of May 30 showed a decrease in short positions and an increase in long positions. The pound experienced a significant decline, and the decent statistics released last week helped to halt the decline and partially compensate for the losses in May. However, with the expectation that the Federal Reserve will continue to raise interest rates, the upside potential of the pair is limited. Despite the Bank of England's pause in June regarding monetary policy, an overheated labor market will only allow the committee to stop the cycle of tightening monetary policy for a short time. Faced with further uncertainty from the Bank of England's monetary policy, this will exert clear pressure on the British pound. According to the latest COT report, non-commercial short positions decreased by 529 to 57,085, while non-commercial long positions increased by 1,117 to 70,320. This led to an increase in the non-commercial net position to 13,235 against 11,059 the previous week. The weekly price decreased to 1.2398 from 1.2425.
Indicator signals:
Moving averages.
Trading is being conducted below the 30-day and 50-day moving averages, indicating further decline in the pair.
Note: The period and prices of the moving averages considered by the author are based on the hourly chart (H1) and differ from the general definition of classical daily moving averages on the daily chart (D1).
Bollinger Bands
In the case of an upward movement, the upper boundary of the indicator around 1.2455 will act as resistance.
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 - convergence/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 subject to 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.
• The non-commercial net position is the difference between non-commercial traders' short and long positions.