FX.co ★ GBP/USD: technical analysis on May 2. US business activity encourages bears

Hello, dear traders! On the 1-hour chart on Monday, the GBP/USD pair made a reversal in favor of the US currency and fell towards the correction level of 100.0%, the level of 1.2447. The decline has not yet ended, and today there will be a strong news background to trigger significant price moves. A bounce off the 1.2447 level will work in favor of the British currency and enable some growth towards 1.2546. Closing below 1.2447 will increase the probability of a continued decline towards the next level of 1.2342.

Yesterday, the economic calendar was almost empty. Two manufacturing PMIs for the US were the only data worthy of note. However, these two reports were enough for the US dollar to get a breath of fresh air. The business activity index rose to 50.2 points, and the ISM index – to 47.1. The most important ISM index remained below 50, but traders still took notice of the growth of both indices, which supported the US dollar.

However, this support is only local. The British currency may resume its advance this week, as there will be many economic events, and not all of them will support the US currency. The bull traders are so strong now that they can open buy positions even without solid fundamentals. Everyone expects a "hawkish" decision on interest rates from the Federal Reserve, but traders had enough time to price in this decision long ago. The US dollar has been falling for a long time, but it may continue to decline this week. The only hope is for a sudden activation of the bulls, upbeat payrolls on Friday, and "hawkish" statements from Jerome Powell on Wednesday evening.

In my opinion, the current market conditions assure the bull traders to consider closing their long positions. However, next week the Bank of England is also holding its policy meeting, and the interest rate may be raised for the 12th time.

On the 4-hour chart, the pair has consolidated below the ascending trend corridor. Exiting the corridor is an important technical signal indicating a shift in sentiment to bearish. The bullish divergence encouraged some growth and even enabled the instrument to update a new peak. The growth process may continue towards the correction level of 100.0%, i.e. 1.2674. The 1.2441 level is currently weak, but each close below it may signal the beginning of the pair's decline towards the correction level of 127.2%, i.e. 1.2250.

Commitments of Traders Report (COT):

The sentiment of the Non-commercial category of traders has become more bullish over the last reporting week. The number of long contracts held by speculators increased by 5,571, while the number of short contracts rose just by 1,034. The overall sentiment of major players is now fully bullish after it had been bearish" for a long time, but the number of long and short contracts is now roughly the same - 59,000 and 53,000, respectively. The British currency is trading mainly higher, but it is doing so at a much slower pace than a few months ago. The prospects for the pound remain bullish, but it might weaken in the near future. The news background no longer provides the same support for the bulls as before.

Economic calendar for US and UK

The UK manufacturing PMI is due at 08-30 UTC

JOLTs job openings for the US are on tap at 14-00 UTC

The economic calendar on Tuesday contains two reports but they will be significant enough to keep traders on their toes. The information background is likely to make a moderate impact on market sentiment today like yesterday.

Outlook for GBP/USD and trading tips

I would advise traders to sell GBP/USD with targets at 1.2447 and 1.2380 in case the instrument closes below 1.2546 on the 1-hour chart. For the time being, such trades could be kept open. We could consider long positions on GBP/USD in case the price rebounds off 1.2447 with upward targets at 1.2546 and 1.2575.