In my morning forecast, I paid attention to the level of 1.2372 and recommended making decisions on entering the market. Let's look at the 5-minute chart and figure out what happened. The lack of fundamental statistics was expected to help the buyers of the pound, but it was not possible to achieve a consolidation above 1.2372. The formation of a false breakdown at this level in the first half of the day led to an excellent sell signal, which resulted in a 40-point drop in the pair. From a technical point of view, nothing has changed, nor has the strategy changed. And what were the entry points for the euro this morning?

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

All attention will now be focused on inflation data in the US, on which the further direction of the pair depends. In the event of a decrease in price pressure, as economists expect, the demand for risky assets will increase, which will help the pound and lead to a second upward movement to the area of the morning resistance of 1.2372. If price pressure increases, and the situation in April is not as favorable as many expect, the pressure on the pound will return, because the US dollar will continue to strengthen its position. Many will expect the Federal Reserve to raise interest rates in June by 0.75% at once. The speeches of the representatives of the Federal Reserve System should also not pass without a trace for the market, since their statements play a rather important role. Considering that there will be speeches after the inflation data, this is very important. Considering that the technical picture has not changed, I advise you to leave the emphasis on the nearest support of 1.2304. 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 lead to a signal to open long positions in the expectation of continuing the upward correction and returning to 1.2372. Considering that the trade takes place in the area of moving averages, it is difficult to say who will win in the end. We can expect a more sharp upward leap only after the data on inflation in the SSC. Fixing above 1.2372 with a reverse test from top to bottom will lead to a buy signal followed by movement to the area of the highs: 1.2441 and 1.2505, where I recommend fixing the profits. In the case of a decline in the pound and the absence of buyers at 1.2304, most likely we will see an update of annual lows and another sale in the area of 1.2261. I also advise entering the market there only with a false breakdown. You can buy GBP/USD immediately on a rebound from the minimum of 1.2185, or even lower - around 1.2122 and only to correct 30-35 points within a day.

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

The fact that trading continues to be conducted in a side-channel play more into the hands of sellers. Protection 1.2372 is an additional plus to everything that is happening. 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 1.2372, by analogy with what I analyzed above, forms a sell signal. You can also count on the breakdown of the 1.2304 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 lows in the area of 1.2261, where I recommend fixing the profits. The 1.2185 area will be a more distant target, but 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 1.2372, a new upward jerk 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 1.2441. 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 1.2505, 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:

Moving averages

Trading is conducted around 30 and 50 daily moving averages, which indicates market uncertainty with further direction.

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.

Bollinger Bands

In the case of a decline, the lower limit of the indicator around 1.2304 will act as support.

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.