Yesterday, several profitable market entry signals were formed. Let's take a look at the 5-minute chart and see what happened. In my morning forecast, I paid attention to the 1.2503 level and advised you to make a decision on entering the market from it. The bulls' failure to rise above 1.2503 ended with a reverse downward test of this level, which generated a signal to buy the pound with a slight upward movement by 10 points. Some time later, the pair returned to 1.2503 again, forming a false breakout there and a buy signal. This time the upward pressure was more than 30 points. Closer to the middle of the US session, the bears did not wait for the Federal Reserve's decision and failed 1.2503, and the reverse test from the bottom up of this range generated an excellent signal to sell the pound. As a result, about 25 points of profit could be taken even before the decision on interest rates was announced.
When to go long on GBP/USD:
Considering how quickly the bears won back all of yesterday's growth during today's Asian session, the chances for further recovery are becoming less and less. Yesterday the Fed announced their decision to raise rates by only 0.5% and take a smoother approach to reducing its balance sheet. This caused the pound to strengthen, but the bears did not release it even beyond the 1.2615 resistance, proving their presence in the market, taking advantage of good prices to further increase short positions. The Fed chairman signaled that the committee is not going to raise rates by 0.75%, and the next two meetings will go exactly according to plan, where, most likely, rates will be increased by only 0.5%. At the time of this writing, trading is conducted near the important support of 1.2531, from which I recommend starting today. Most likely, before the Bank of England (BoE) announces their decision on interest rates, we will see a test of this range, so forming a false breakout at 1.2531 will result in creating the first entry point into long positions, expecting the pound to return to 1.2615. Surpassing this range entirely depends on the English central bank's future policy - if BoE Governor Andrew Bailey announces serious plans to fight inflation, you can bet on surpassing 1.2615. A test of this level from top to bottom will provide an entry point into long positions with the goal of a sharper breakthrough to the 1.2684 area, where I recommend taking profits. It is quite difficult to count on further, more active movement to 1.2728. Only a breakthrough of this range will open the way to 1.2770. In case the pair falls and the bulls are not active at 1.2531, and this might be the case - given the BoE's wait-and-see position, I advise you not to rush into long positions. You can open longs immediately for a rebound only in the area of 1.2455, or even lower - in the area of 1.2381, based on an upward correction of 25-30 points within the day.
When to go short on EUR/USD:
The main goal for today is to surpass the nearest support at 1.2531, which will completely negate all the bulls' efforts to build an upward correction. A breakthrough and reverse test of 1.2531 from below creates a sell signal, which, along with Bailey's dovish rhetoric, will quickly push the GBP/USD to the 1.2455 area, a new major support level formed at the end of yesterday. A breakthrough of this range will also be the last straw for the bulls, which will create a sell signal with the prospect of reaching a low like 1.2381, where I recommend taking profits. The 1.2321 is the next goal. In case GBP/USD grows, the bears will try to do everything to prevent the exit above the resistance of 1.2615. A breakthrough of this range will strengthen the upward correction and lead to removing a number of stop orders. Therefore, forming a false breakout there will be a signal to sell in order to continue the bear market. If there is no activity around 1.2615, I advise you to postpone short positions until the next major resistance at 1.2684. 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 high of 1.2728, counting on the pair's rebound down by 30-35 points within the day.
COT report:
The Commitment of Traders (COT) report for April 19 showed that both short and long positions have increased, but there were much more of the former, which is obvious if you look at the GBP/USD chart. The UK economy is in very bad shape, as Bank of England Governor Andrew Bailey confirmed last week. His statements that the economy is heading into recession were the last straw holding back pound bears in the second half of April. As a result, surpassing the annual low and a new major sell-off of the pound has already driven the trading instrument below the 26th figure, and it seems that this is not the end. The consumer price index is climbing steadily into double digits, and a worsening global situation due to disruptions to supply chains amid a new wave of Covid-19 in China creates even more problems. The situation will only get worse, as future inflationary risks are now quite difficult to assess also due to the difficult geopolitical situation, but it is clear that the consumer price index will continue to rise in the coming months. The situation in the UK labor market, where employers are forced to fight for each employee, offering ever higher wages, is also pushing inflation higher and higher. The pressure on the pound is also growing for another reason - the aggressive policy of the Federal Reserve. The Committee may announce an increase in interest rates immediately by 0.75% during the May meeting - they do not have such problems as in the UK with the economy yet. The April 19 COT report indicated that long non-commercial positions rose from 35,514 to 36,811, while short non-commercial positions jumped from 88,568 to 95,727. This led to an increase in the negative value of the non-commercial net position from - 53,054 to -58,268. The weekly closing price fell from 1.3022 to 1.2997.
Indicator signals:
Trading is conducted around the 30 and 50-day moving averages, which indicates an attempt by the bears to regain control of the market.
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
In case of growth, the upper border of the indicator around 1.2670 will act as resistance. In case of a decline, the lower border of the indicator around 1.2455 will act as support.
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.
