FX.co ★ GBP/USD: plan for the European session on May 7. COT reports. Bank of England's decision led to a surge in volatility, but did not add certainty

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

Several excellent signals to enter the market were formed yesterday. Let's take a look at the 5-minute chart and figure it out. A strong PMI report for the UK services sector helped the pound recover its positions against the dollar and get close to the resistance at 1.3921. A false breakout on it created a signal for you to open short positions, which were fully realized after the Bank of England's decision had been announced. The downward movement was around 40 points. Let me remind you that the British central bank left the interest rate and economic stimulus unchanged at 0.10%. The bank also kept its corporate bond purchases at £20bn and government bonds at £875bn. Then we could observe an unsuccessful attempt to push the pound above resistance at 1.3921, a return under which and its test from the reverse side created a new entry point for short positions. As a result, we could once again observe the pound's movement to the support area of 1.3878, which brought another 40 points of profit. And in the middle of the US session, after the bulls regained the level of 1.3878, a signal to buy the pound was formed, which led to a slight upward correction of the pair in today's Asian session.

Technically, not much has changed since yesterday. It is still important for the bulls to surpass the 1.3921 range in the morning. Good data on the UK construction sector, the speech of the Deputy Governor of the Bank of England for Monetary Policy Ben Broadbent and being able to settle above the level of 1.3921 with a test from top to bottom - all this creates a signal for new long positions, as we count on continuing the upward April trend. The next target will be growth 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 go beyond the wide horizontal channel, in which it has been since the end of April. Bulls will have to defend support at 1.3878 in case GBP/USD falls. You can act from there only after forming a false breakout. If GBP/USD isn't actively being traded at the 1.3878 low, then I recommend refraining from long positions immediately to a rebound from local support in the 1.3839 area, or even lower - until the 1.3799 low has been tested, from where one can expect an upward correction of 25-30 points within the day.

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

At the moment, the bears need to think of a way to defend resistance at 1.3921, which they successfully did yesterday. Weak fundamental reports on the UK may help this scenario come true. Forming a false breakout in the 1.3921 area generates 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 not active at the level of 1.3921, and good US labor market report may return the demand for risky assets, I recommend postponing short positions until the upper border of the horizontal channel at 1.3970 has been updated, from where you can open short positions immediately on a rebound with the aim of a downward correction in 20- 25 points within the day. The next major resistance is seen at 1.4016. An equally important task for the bears is to surpass support at 1.3878, which they did not manage to do yesterday. Only a breakthrough and consolidation below this level with a reverse test 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 level 1.3799.

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 and the lack of certainty with the succeeding direction of the pair.

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

Surpassing the upper border of the indicator in the area of 1.3915 will lead to a new wave of growth for the pound. Surpassing the lower border of the indicator in the area of 1.3875 will increase the pressure on the pound.

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.