FX.co ★ GBP/USD: plan for the European session on May 24. COT reports. Pound failed to settle new highs and returned to a horizontal channel

To open long positions on GBP/USD, you need:

Friday was quite an interesting day for trading the British pound. Let's take a look at the 5 minute chart and break down all the trades that have been formed.

Back in the first half of the day, after good data on activity in the manufacturing sector and the service sector in the UK were published, the bulls were active as they surpassed the resistance at 1.4201. I was expecting a reverse test of this level from top to bottom, but it did not happen during the European session, so I did not manage to enter long positions from this level. In general, the upward movement from 1.4201 reached around 30 points, so whoever bought above 1.4201 could make good money.

The 1.4201 level was tested in the second half of the day and the bulls seem to have created a good entry point into long positions from it. But, unfortunately, after slightly rising by 13 points, the bears were active, which soon led to a breakdown of this range. However, after settling below the 1.4201 level, an excellent test of it took place from the bottom up, which formed a signal to sell GBP/USD, which by the end of the day reached its target value around 1.4151, and made it possible for traders to take around 50 points of profit from the market.

Important fundamental reports will not be released today, and most likely, the pound will still be under pressure. However, the bulls are unlikely to give up quickly, and their initial goal for the first half of the day is to rise above 1.4171, which they missed last Friday afternoon. A breakthrough and test of this level from top to bottom can create a signal for you to open new long positions in continuation of the upward trend with the immediate goal of returning to the monthly high in the area of 1.4230, where I recommend taking profit. If you look at the chart, you will see that moving averages pass just above 1.4171, also limiting the upward potential of the pair. It is hardly possible for us to expect the pair to surpass the 1.4230 level and this can only happen in the afternoon, when the parliamentary hearings on the Bank of England's monetary policy report are held and Bank of England Governor Andrew Bailey is set to deliver a speech. If GBP/USD breaks out of 1.4230, the next major resistance will be seen in the 1.4310 area. In case the pound falls in the first half of the day, the bulls should be present in the area of 1.4105. Forming a false breakout there creates an excellent entry point into sustaining the upward trend. If the bulls are not active there, then the pound might be under pressure, and the bears will continue to build a new downward channel. In this case, I do not recommend rushing into long positions: the optimal scenario would be long positions for a rebound from a large low like 1.4041, counting on an upward correction of 25-30 points within the day.

To open short positions on GBP/USD, you need:

If the pound grows in the first half of the day, then the best option for opening short positions will be when a false breakout forms in the resistance area of 1.4171, above which the moving averages, playing on the side of the sellers, pass. Bailey's statements on the topic of maintaining the super-soft monetary policy will significantly affect the pound's direction, so I expect a larger decline to the support area of 1.4105. A breakthrough and test of this area from the bottom up (by analogy with the trade that I analyzed above) can create an additional entry point into short positions, which will plunge GBP/USD to the area of a low like 1.4041, where I recommend taking profits. If the pound rises in the first half of the day and the bears are not active around 1.4171, then it is best not to rush to sell. I advise you to refrain from short positions until the high is renewed in the area of 1.4230, from which you can open short positions immediately on a rebound, counting on a downward correction of 20-25 points within the day.

The Commitment of Traders (COT) reports for May 11 revealed that both long and short positions have increased. All this happened against the background of a slight downward correction from the pair, which was fully won back after we received good indicators on the rate of contraction of the UK economy in the first quarter 2021. Last month's growth also gave investors hope that the British pound will continue to gain strength. And almost all quarantine restrictions will be lifted in the UK at the beginning of summer, given the good pace of vaccination against coronavirus, we can assume a sharp recovery in GDP in the second quarter of 2021, which will be the highest in the history of the indicator. Such news strengthens investor confidence in the British pound and its prospects. The COT report indicated that long non-commercial positions rose from 52,262 to 64,947. At the same time, short non-commercial positions increased from 32,414 to 36,771, resulting in a non-commercial net position increased to 28,176 from 19,848 a week earlier. Last week's closing price also jumped to 1.41308 against 1.39033.

Indicator signals:

Trading is carried out below 30 and 50 moving averages, which indicates an attempt by the bears to take control of the market.

Moving averages

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

The growth of the pound will be limited in the area of the upper border of the indicator in the area of 1.4220. A breakout of the lower border of the indicator in the area of 1.4115 will increase the pressure on the pair.

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 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.