Several excellent market entry signals were formed last Friday. Let's take a look at the 5-minute chart and see what happened. I paid attention to 1.2325 in my morning forecast and advised making decisions from it. Failure to return above 1.2325 resulted in forming several false breakouts, which in turn gave signals to sell the pound. Each of them made it possible to see a fall from 60 to 70 points. As a result of the pound's decline in the morning, we did not reach the level of 1.2241, so we did not manage to wait for good entry points to form in the market there. The bears surpassed the area below 1.2254 in the afternoon, but in fairness, it was not possible to wait for a good entry point for selling, which I noted on the chart with a reverse test from bottom to top 1.2254 - there were not enough points to confirm the signal. I missed the fall. However, after a test and a false breakout at 1.2178, a great buy signal was formed at the end of the week, which led to a 40-point bounce, which is quite good.
When to go long on GBP/USD:
The correction in the pound on Friday was very significant, but the bulls still have a chance to keep the market under their control and to continue the upward trend - with the prospect of building the lower boundary of the new channel. There is no data today, so you can pay attention to the speech of Haskell, a member of the Monetary Policy Committee of the Bank of England. It is unlikely that his words will seriously affect the pound. Last week, after raising interest rates by 25 basis points to 1.25%, the central bank said it would continue to pursue an aggressive policy, which, in fact, plays on the side of the pound bulls.
In case a slight downward correction of the pair takes place in the morning, the bulls will have to try very hard to offer something around 1.2178, where the lower border of the new ascending channel passes. Therefore, forming a false breakout at 1.2178 will give a signal to open new long positions, counting on growth to the nearest resistance at 1.2254. This level is critically important for the bulls, as taking control of the level, it will be possible to confidently count on the continuation of the bull market formed on June 14th. A breakthrough and downward test of 1.2254 will give a buy signal in anticipation of an update at 1.2331 and then last week's high at 1.2400. A similar breakthrough of this level will lead to another entry point into long positions with the prospect of exiting at 1.2452, where I recommend taking profits.
A more distant target will be the area of 1.2484. If the GBP/USD falls and there are no bulls at 1.2178, the pressure on the pair will increase. In this case, I advise you to open new long positions only on a false breakout from 1.2102. You can buy GBP/USD immediately on a rebound from 1.2030, or even lower - in the area of 1.1938 with the goal of a correction of 30-35 points within the day.
When to go short on GBP/USD:
The bears tried to regain control of the market on Friday, which worked out pretty well. Having won back a significant part of the growth, today they have every chance of breaking the upward correction observed on June 14th. To do this, they need to return to the level of 1.2178, formed on the basis of last Friday, as quickly as possible. Consolidating below 1.2178 and a reverse test from below will give an entry point into short positions with the prospect of a decline to 1.2102, which will lead to a complete surrender of pound bulls. A more distant target will be the area of 1.2030, where I recommend taking profits. In case GBP/USD grows, the bears will most likely show themselves in the area of the nearest resistance at 1.2254, which they should not miss in any way - this will lead to the loss of initiative and the development of an already bullish scenario. A false breakout at this level would provide a good entry point for short positions in anticipation of a resumption of the downward trend.
If traders are not active at 1.2254, another upsurge may occur amid the removal of stop orders of speculative bears. In this case, I advise you to postpone short positions until 1.2331. But even there, I advise you to sell the pound only in case of a false breakout, as going beyond this range will increase the demand for GBP/USD. You can immediately look at short positions for a rebound from 1.2400, or even higher - from 1.2452, based on the pair's rebound down by 30-35 points within the day.
COT report:
The Commitment of Traders (COT) report for June 7 logged a sharp increase in long positions and only a small growth in short ones. However, as I think you understand, at the moment the picture is completely different: the last three trading days have turned the market upside down. The pair's succeeding direction, which is in the area of annual lows, depends on the Federal Reserve meeting and on the decisions taken at it. A more aggressive policy will push GBP/USD further down, as the UK economy, as the latest data showed, is gradually reducing the growth rate, which does not give confidence to investors. The Bank of England meetings are unlikely to help the pound in any way, since the central bank will not abandon the policy of raising rates. I very much doubt its further aggressive actions aimed at combating inflation by sacrificing the growth rate of the economy. Although BoE Governor Andrew Bailey continues to say that the central bank is not going to give up on raising interest rates yet, however, there are also no hints of a more aggressive approach to monetary policy.
The COT report indicates that long non-commercial positions increased by 3,830 to the level of 34,618, while short non-commercial positions increased by 535 to the level of 105,428. This led to a decrease in the negative value of the non-commercial net position from the level of -74,105 to the level of -70,810. The weekly closing price rose 1.2481 to 1.2511.
I recommend to read:
Indicator signals:
Moving averages
Trading is conducted in the area of 30 and 50-day moving averages, which indicates an active confrontation between bulls and bears.
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 1.2178 will act as support. In case of growth, the area of 1.2254 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.
