FX.co ★ GBP/USD: plan for the European session on May 6. COT reports. Bank of England's decision will lead to a surge in pound volatility. You need to leave the channel

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

Several signals to enter the market were formed yesterday. Let's look at the 5-minute chart and analyze the entry points: in the first half of the day, a signal to sell the pound was formed from the level of 1.3917, which I drew attention to in my morning forecast. You could clearly see that following an unsuccessful update of local lows, bulls quickly returned to a large resistance level at 1.3917, where a false breakout took place. Then the bulls tried to rise above 1.3917 again during the US session but also failed, which confirmed the correct decision to enter, and it also created another signal to open short positions. As a result: the downward movement was about 30 points, which is more than half of yesterday's intraday volatility.

Technically, not much has changed since yesterday. In the first half of the day it is important for the bulls to surpass the 1.3921 range, however, they are unlikely to do so before the Bank of England's monetary policy decision is announced. Consolidating above this level and testing it from top to bottom will be a signal to open new long positions, counting on the upward April trend to continue. The primary goal is to rise to a rather important resistance at 1.3970, where I recommend taking profits. The next target will be the 1.4016 high, the renewal of which will resume the bullish trend, allowing the pound to move beyond the wide horizontal channel, in which it has been since the end of April. However, this will only be possible if the British central bank announces the gradual curtailment of the emergency bond purchase program and changes in its monetary policy. In case GBP/USD falls, bulls will have to defend support at 1.3878, which formed yesterday. You can act from there only after forming a false breakout. If GBP/USD is not active at the 1.3878 low, then I recommend refraining from long positions immediately to a rebound from the local support at 1.3839, or even lower - until the 1.3799 low test, from where you can expect an upward correction of 25-30 points within the day.

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

The bears currently need to think of a way to defend resistance at 1.3921, which they successfully did yesterday. If the pair returns to this level during the European session, it is possible that the bears will retreat from it and wait for the Bank of England's decision. Therefore, forming a false breakout in the 1.3921 area creates a signal to open short positions in hopes of falling to support at 1.3878, in the area of which the pair stopped falling yesterday. If the bears are ot active at the level of 1.3921, and changes in the Bank of England's policy pushed the pair to rise, then I recommend postponing short positions until the upper border of the horizontal channel (1.3970) has been updated, from where you can open short positions immediately on a rebound, counting on a downward correction of 20-25 points within the day. The next major resistance is seen at 1.4016. An equally important task is to surpass support at 1.3878, as they failed to get the pair to settle below it yesterday. A breakthrough and consolidation below this level with a reverse test of it from the bottom up can create a good entry point to short positions in hopes of returning the pair to the 1.3839 area, where I recommend taking profits. The next target will be the 1.3799 level.

The Commitment of Traders (COT) report for April 27 revealed that both long and short positions have decreased, while the total non-commercial net position increased. How it happened - let's figure it out. Last week, we did not see any important fundamental statistics from the UK, so everyone was focused on the European Parliament vote on Brexit, the results of which supported the pound. Also, the speeches of the British Prime Minister and the possible earlier lifting of all quarantine restrictions in Britain enabled the bulls to adhere to their scenario to strengthen the pair. All this will contribute to growth in the medium term, so I recommend betting that the pound would strengthen further against the US dollar. Any good downward correction is another reason to think about buying the pound, since the prospect of a recovery in the UK economy in the summer gives rise to a lot of optimism. The COT report revealed that long non-commercial positions declined from 61,053 to 59,917. At the same time, short non-commercials fell from 35,875 to 30,699, causing the non-commercial net position to rise to 29,218 against 25,178 a week earlier. Closing short positions once again points to the fact that the pound has a huge potential to grow. Last week's closing price also slightly dropped to 1.38947 against 1.39915.

Indicator signals:

Moving averages

Trading is carried out in the area of 30 and 50 moving averages, which indicates the sideways nature of the market ahead of important fundamental reports.

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

Volatility has decreased, which does not provide signals to enter the market based on the indicator.

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.