In my morning forecast, I paid attention to the level of 1.2230 and recommended making decisions on entering the market. Let's look at the 5-minute chart and figure out what happened. The lack of statistics for the UK, as expected, led to the test 1.2230, where I advised opening short positions in the morning, which happened. As a result, the pair fell by more than 40 points but fell short of the planned support by about 5 points. For this reason, it was not possible to get an entry point into long positions. For the second half of the day, the technical picture, as well as the strategy itself, has not changed in any way. A small change has undergone immediate resistance, and nothing more. And what were the entry points for the euro this morning?
To open long positions on GBP/USD, you need:
Bulls masterfully defend the resistance of 1.2170, which may lead to a larger upward correction of the pound in the near future. However, it is worth noting that we already went through all this a week ago, and then, alas, buyers capitulated, which led to another major wave of GBP/USD falling along with the trend. Let's see what FOMC members Neil Kashkari and Loretta Mester have to say today. The volatility of the pound will also be affected by statistics on consumer sentiment from the University of Michigan. In case of weak data, bulls can expect a more powerful correction at the end of this week. If the pressure on the pound returns, I advise you to leave the emphasis on the nearest support of 1.2170. Hawkish statements by FOMC members may lead to a decline in the pound in this area, but only the formation of a false breakdown there will give a signal to open long positions in the expectation of an upward correction and growth to a new resistance of 1.2227. It is possible to expect a sharper upward leap, but only after weak statistics. Fixing above 1.2227 with a reverse test from top to bottom will lead to a buy signal followed by a move to the area of 1.2282. I recommend fixing profits there. The more distant target will be the 1.2334 area, but it is difficult to imagine what should happen to implement such a scenario. In the event of a further decline in the pound and the absence of buyers at 1.2170, most likely we will see another update of the annual lows and a sale in the area of 1.2122. I also advise you to enter the market there only if there is a false breakdown. You can buy GBP/USD immediately on a rebound from the minimum of 1.2074, or even lower - around 1.2030 and only with the aim of correction of 30-35 points within a day.
To open short positions on GBP/USD, you need:
Rumors will spread in the market that the Bank of England may suspend its campaign to raise rates, shifting the burden of responsibility to the Ministry of Finance and Chancellor of the Exchequer Rishi Sunak. Some economists believe that the regulator will suspend the increase in interest rates in June - if this happens, we will see new lows for the GBPUSD pair and the continuation of the bear market. Protection of 1.2227 is an important strategy of sellers for today. While trading is below this range, you can bet on a further fall of the pair. In the case of a spurt of the pound up after the US data, only the formation of a false breakdown at 1.2227 forms a sell signal. You can also count on the breakdown of the 1.2170 level. A breakthrough and a reverse test from the bottom up of this range will lead to the formation of an additional sell signal that can collapse the pound to the next minimum of 1.2122, where I recommend fixing the profits. A more distant target will be the 1.2074 area. It is possible to hope for the implementation of this scenario only after the speeches of the Fed representatives and their more hawkish statements. With the option of GBP/USD growth and lack of activity at 1.2227, a new upward spurt may occur against the background of the demolition of stop orders. In this case, I advise you to postpone short positions to a larger resistance of 1.2282. I also advise you to open short positions there only in case of a false breakdown. You can sell GBP/USD immediately for a rebound from 1.2334, counting on the pair's rebound down by 30-35 points within a day.
The COT report (Commitment of Traders) for May 3 recorded a reduction in both short and long positions, but the former turned out to be much smaller, which led to another increase in the negative delta. The fact that things are very bad in the UK economy, and the situation with a sharp increase in the cost of living is not changing for the better, makes investors rather cautious about the pound and what awaits it next. The monetary policy of the Federal Reserve System aimed at tightening the cost of borrowing will continue to support the US dollar, pushing the British pound lower and lower. The only thing that can be counted on now is a slight decrease in inflationary pressure in the United States, which may lead to an upward correction. The recent actions of the Bank of England to raise interest rates have not yet brought the desired result, as the policy remains very restrained in the face of high inflationary pressures observed in the UK. Considering that the governor of the Bank of England, Andrew Bailey, recently confirmed that the economy is moving towards recession, nothing good can be expected in the near future, as well as one cannot count on the strong growth of the pound. The situation will only worsen, as future inflation risks are now quite difficult to assess due to the difficult geopolitical situation, but the consumer price index will continue to grow in the coming months. The situation in the UK labor market, where employers are forced to fight for every employee by offering higher and higher wages, is also pushing inflation higher and higher. The COT report for May 3 indicated that long non-commercial positions decreased by 6,900 to the level of 33,536, while short non-commercial positions decreased by only 2,708 to the level of 107,349. This led to an increase in the negative value of the non-commercial net position from -69,621 to -73,813. The weekly closing price decreased from 1.2587 to 1.2490.
Signals of indicators:
Trading is conducted below 30 and 50 daily moving averages, which indicates a further decline in the pair along with the trend.
Note: The period and prices of moving averages are considered by the author on the hourly chart H1 and differ from the general definition of the classic daily moving averages on the daily chart D1.
In the case of a decline, the lower limit of the indicator around 1.2170 will act as support. In the case of growth, the upper limit of the indicator in the area of 1.2227 will act as resistance.
Description of indicators
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. The graph is marked in yellow.
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. The graph is marked in green.
- MACD indicator (Moving Average Convergence / Divergence - moving average convergence/divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-profit speculative traders, such as individual traders, hedge funds, and large institutions use the futures market for speculative purposes and to 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 the short and long positions of non-commercial traders.