To open long positions on GBP/USD, you need:
Quite a lot of signals to enter the market were formed yesterday. Let's take a look at the 5-minute chart and analyze the entry points.
In the first half of the day, weak data on the slower growth in activity in the UK manufacturing sector negatively affected the positions of the British pound. In the morning I recommended paying attention to the support at 1.4216 and advised you to open long positions from this level. As a result of a false breakout, a buy signal was formed, but there was no strong upward movement in continuation of the trend, and after jumping by 20 points, the bull market ended.
After a repeated test of the 1.4216 level, there was a breakthrough, but I did not see a reverse correction, therefore, there was no sell signal from 1.4216 either. I had to wait for an update of support at 1.4169, where I advised to buy immediately on a rebound, which happened. The upward movement from this level was about 20 points. Towards the middle of the US session, the bears tried and failed to fall below support at 1.4169, after which a signal to buy the pound was generated, but people were not willing to open long positions from this level either.
At the moment, the technical picture has slightly changed, although the market remains on the side of the bears. The bulls' primary task for today is to control support at 1.4142, which was formed on May 28 this year.
Considering that important reports on the UK economy will not be released today, except for lending data, then the pound might be under pressure in the first half of the day. Forming a false breakout at the level of 1.4142 generates a signal to open long positions in hopes of stopping the bearish trend and restoring the British pound. In such a scenario, one can count on an update of resistance at 1.4188, where the moving averages pass, playing on the side of the bears. A breakthrough and a downward test of this level will open a direct path for GBP/USD to the highs of 1.4241 and 1.4310, where I recommend taking profits. If GBP/USD is under pressure and the bulls are not active around 1.4142, then I recommend that you take your time with long positions. The optimal scenario would be long positions immediately to rebound from the 1.4102 low, or even lower - from the level of 1.4056, counting on an upward correction of 25-30 points within the day.
To open short positions on GBP/USD, you need:
The primary task is to surpass and test the 1.4142 area from the bottom up (by analogy with the sell, which I analyzed a little above), which forms the entry point to short positions in hopes of continuing the bear market observed yesterday. Such a scenario should plunge GBP/USD to a low like 1.4102, where I recommend taking profits. The next target will be support at 1.4056. It will be possible to say that the bulls have stopped the downward trend only after they regain control of resistance at 1.4188. Therefore, the bears' priority is to protect this range. Forming a false breakout there will be a signal to open short positions in continuation of the trend. In case the pound grows in the first half of the day and the bears are not active around 1.4188, it is best not to rush to sell: I advise you to postpone short positions until an update to the 1.4241 high, from which you can sell the pound immediately on a rebound, counting on a downward correction of 20-25 points inside day.
The Commitment of Traders (COT) reports for May 25 showed that short positions decreased while long ones increased. Recent statements by representatives of the Bank of England that now is the time to think about curtailing support measures and raising interest rates surprised many traders, but this returned the demand for the British pound, and due to this, it managed to pull up the currency to annual highs. The pound was also supported by the news that from June 21 this year, the UK economy will be fully open and all restrictive measures due to Covid will be canceled. This will be a good bullish boost for retail sales and inflation. The upward potential of the pound will remain quite high amid this background, you just need to wait a little. The COT report indicates that long non-commercial positions increased from 63,027 to 64,193, but short non-commercial positions sharply decreased from 38,127 to 33,534, which indicates profit-taking and the bears leaving the market, after unsuccessful attempts to turn the market to their side. This is another advantage for the bulls and those who believe in the continuation of the medium-term upward trend. As a result, the non-commercial net position increased from 24,900 to 30,659. The closing price of last week did not change significantly and reached 1.41553 against 1.41479.
Indicator signals:
Trading is carried out below 30 and 50 moving averages, which indicates an attempt by the bears to seize control of the market and a succeeding decline for the pound.
Moving averages
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 lower boundary of the indicator in the area of 1.4140 will lead to a new wave of decline for the pound. A breakthrough of the upper border of the indicator in the area of 1.4188 will lead to an increase in the pair.
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.
