FX.co ★ GBP/USD: plan for the European session on May 27. COT reports. The British pound performed well

Yesterday, a fairly large number of excellent market entry signals were formed, which turned out to be very profitable. Let's take a look at the 5-minute chart and see what happened. I paid attention to the level of 1.2609 in my morning forecast and advised you to make decisions on entering the market from it. Growth and a false breakout forming at this level in the first half of the day against the background of the absence of important fundamental statistics was quite expected. This resulted in a great signal for short positions. However, the pound did not immediately go down. Toward the middle of the day, the bulls tried once again to rise above 1.2609, but failed again, forming a confirming signal to open short positions, which led to a sharp drop in the pound down by 50 points at once. Bulls took advantage of the 1.2558 level in the afternoon and we received disappointing data on US GDP, forming excellent entry points for long positions. As a result, the upward movement was also about 50 points, making it possible for the pound to return to weekly highs.

When to go long on GBP/USD:

The weak US GDP report caused the US dollar to weaken and the bullish trend for the pound continued, which continues to be bought off amid hoping for the best - there are no other real reasons to build up long positions. The UK economy is shrinking and will continue to do so on the back of high inflation, which will exceed 9.0% in the near future. The Bank of England's previous position on interest rates and the government's support for the UK population will continue to push prices up, so I would not count on a very active growth of the pound in the medium term. Today's lack of UK statistics will continue to help the bulls, but be wary of buying at the current monthly highs at the end of the week. If the pound does not actively move up in the near future, bulls will have to think about protecting 1.2617, where the moving averages are playing on their side. Forming a false breakout at this level will lead to a signal to open new long positions, counting on the continuation of the bullish trend with growth to a new weekly high of 1.2665, which we failed to get above in today's Asian session.

We can expect a sharper upward movement, but only after consolidating above this range with a reverse test from top to bottom, which may occur in the first half of the day. This will open the way to new monthly highs in the area of 1.2706 and 1.2765, where I recommend taking profits. The next target will be the 1.2803 level. In case the pound falls and bulls are not active at 1.2617, the pressure will seriously increase, which will allow the pair to return to 1.2569. Therefore, I advise you not to rush into long positions. It is best to enter the market after a false breakout at this level. You can buy GBP/USD immediately on a rebound only from 1.2525 - a weekly low, or even lower - in the area of 1.2481 with the goal of correcting 30-35 points within the day.

When to go short on GBP/USD:

The bears are aiming for 1.2617, but going below this level will be quite problematic. Given the strong bullish trend, one can count on large players closing part of their profits at the end of the month and on a correction, but so far there are no serious prerequisites for this. It is necessary to return to 1.2617 or at least protect 1.2665, and this requires strong macroeconomic reports on the American economy. A false breakout at 1.2665, by analogy with what I analyzed above, will be an ideal condition for opening short positions in anticipation of a return and consolidation below 1.2617. A breakthrough and reverse test from below 1.2617 creates another signal for short positions, allowing GBP/USD to return to the 1.2569 area, opening a direct path to a low like 1.2525, where I recommend taking profits.

The next target will be a weekly low at 1.2481. But even a test of this level will not greatly harm the developing trend, but will only slightly reassure active bulls. With the option of GBP/USD growth and lack of activity at 1.2665, another upsurge may occur amid stop orders being dismantled. In this case, I advise you to postpone short positions until the next major resistance at 1.2706. I also advise you to open short positions there only in case of a false breakout. You can sell GBP/USD immediately for a rebound from the 1.2765 high, or even higher - from 1.2803, based on the pair's rebound down by 30-35 points within the day.

COT report:

The Commitment of Traders (COT) report for May 17 showed that both long and short positions have decreased - the decline of the latter turned out to be much greater. This suggests that the market may be gradually approaching the bottom, and also that traders are enjoying quite attractive prices and despite the whole situation in the UK and uncertainty, they are gradually looking at the market.

I have repeatedly noted the presence of a number of problems in the UK economy, as a rather difficult situation with inflation and slowdown in economic growth make the Bank of England rush between two fires. But it is worth noting that despite all this, BoE Governor Andrew Bailey, in his recent interview noted that the central bank is not going to refuse to raise interest rates in the near future. But the same cannot be said about the policy of the Federal Reserve. Rumors have spread that the central bank plans to "pause" the cycle of raising interest rates as early as September this year, which will definitely have a negative impact on the positions of the US dollar and partially weaken it.

The May 17 COT report indicated that long non-commercial positions decreased by -2,856 to 26,613, while short non-commercial positions decreased by -3,213 to 105,854. level -79,598 to 79,241. The weekly closing price increased from 1.2313 to 1.2481.

Indicator signals:

Moving averages

Trading is conducted above the 30 and 50-day moving averages, which indicates an attempt by the bulls to continue the growth 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

In case of a decline, the lower border of the indicator around 1.2560 will act as support. In case of growth, the area of 1.2665 will act as resistance.

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.