In my morning forecast, I paid attention to the 1.2722 level and planned to decide to enter the market based on it. Let's look at the 5-minute chart and figure out what happened there. The decline and the formation of a false breakdown there gave a buy signal. However, as you can see on the chart, it has yet to reach a major upward movement. After recovering by 15 points, the pressure on the pair returned, a bad signal for pound buyers. In the afternoon, the technical picture was revised.
To open long positions on GBP/USD, you need:
Inflation data in the UK provoked a strong spike in volatility in the morning. Still, it did not reach the development of a larger upward trend after updating the monthly maximum. Now, buyers may lose control of the market altogether, so you must try very hard to prevent going beyond the nearest support of 1.2697, the test that will take place very soon. Weak data on the volume of home sales in the US secondary market and the softer minutes of the May Fed meeting will certainly help buyers with the protection of 1.2697, and the formation of a false breakdown there will be the starting point for entering long positions based on the 1.2730 update. A rush and a top-down test of this range will determine the chance of GBP/USD growth with an update of 1.2759 – a new resistance and a monthly maximum. In the case of an exit above this range, we can talk about a breakthrough to 1.2800, where I will fix profits. In the scenario of GBP/USD falling and no buyers at 1.2697 in the afternoon, the pressure on the pound will increase, leading to a downward movement towards the lower boundary of the 1.2672 side channel. Forming a false breakdown will be a suitable option for entering the market. Opening long positions on GBP/USD immediately on a rebound from 1.2646 to correct 30-35 points within a day is possible.
To open short positions on GBP/USD, you need:
In case of a bullish reaction to the protocols and data on the US housing market, I will act in the area of the nearest resistance of 1.2730, formed following the results of the European session. The formation of a false breakdown there will lead to an excellent entry point into short positions to reduce GBP/USD to the support area of 1.2697. A breakout and a reverse test from the bottom up of this range will increase the pressure on the pair, giving the bears an advantage and another entry point to sell to update 1.2672, where I expect a more active manifestation of buyers. A longer-range target will be a minimum of 1.2646, negating all the bulls' efforts last week. I will fix the profit there. With the option of GBP/USD growth and the absence of bears at 1.2730 in the afternoon, buyers will regain the initiative, allowing another update of 1.2759. I will also serve there only on a false breakdown. Without activity there, I advise you to open short positions on GBP/USD from 1.2800, counting on the pair's rebound down by 30-35 points within the day.
In the COT report (Commitment of Traders) for May 14, there was a reduction in long and short positions. Before the decisive actions of the Bank of England, which is now on the path of lowering interest rates and preparing the market for this, it is not surprising why traders prefer to close positions. The data on GDP and inflation now indicate a problem-free reduction in the cost of borrowing, but how to proceed is a rather serious question. Excessively soft policies can lead to serious problems and inflationary pressures, which the regulator must still deal with fully. Against this background, expecting the pound to reach new highs is possible, but it won't be easy. The latest COT report says that long non-profit positions fell by 3,103 to 48,674, while short non-profit positions fell by 4,841 to 68,749. As a result, the spread between long and short positions increased by 2,109.
Indicator signals:
Moving averages
Trading is conducted around the 30 and 50-day moving averages, which indicates problems for pound buyers.
Note: The author considers the period and prices of the moving averages on the hourly chart H1, which differs from the general definition of the classic daily moving averages on the daily chart D1.
Bollinger Bands
In case of a decline, the indicator's lower limit of 1.2690 will act as support.
Description of the indicators
• Moving average (moving average determines the current trend by smoothing volatility and noise). Period 50. It is marked in yellow on the chart.
• Moving average (moving average determines the current trend by smoothing volatility and noise). Period 30. It is marked in green on the chart.
• MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Fast EMA period 12. Slow EMA period 26. SMA period 9
• Bollinger Bands. Period 20
• Non-profit 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.
• The total non-commercial net position is the difference between non-commercial traders' short and long positions.
