Yesterday was not the most interesting day for trading the British pound. Let's take a look at the 5-minute chart and see what happened. I paid attention to the 1.2171 level in my morning forecast and advised making decisions from it. An attempt to surpass 1.2171 in the morning was unsuccessful, which resulted in forming a false breakout and a signal to buy the pound. After moving up 20 points, the pair was under pressure again and the bears tested 1.2171, forming a sharper downward move below this level. Although the technical picture was revised in the afternoon, it was not possible to get convenient entry points to the market: the support at 1.2162 was "smeared", and it did not reach the next level of 1.1980.
When to go long on GBP/USD:
The bears broke through and even managed to settle under the lower boundary of the weekly horizontal channel, but judging by what is happening, traders are not particularly willing to sell the pound further. From this we can conclude that all this was necessary for removing stop orders. For this reason, today the bulls have a chance to return to market equilibrium, but this requires good data on the UK and consolidation above 1.2152, where the moving averages are playing on the bears' side. In case we receive disappointing statistics on UK GDP for the first quarter of 2022 and a fall in the housing price index, then the pound will be under pressure again.
In this case, the bulls will have no choice but to count on protecting the nearest support at 1.2098, formed on the basis of yesterday's results. An update of this level and forming a false breakout on it will be the first signal to open long positions with the goal of recovering to the area of 1.2152, which, as I said, is very important for the bulls. A breakthrough and downward test of 1.2152 will provide a signal for longs with the goal of updating 1.2207. A similar breakthrough of this level will lead to another entry point into long positions with the prospect of exiting at 1.2267, where I recommend taking profits. A more distant target will be the area of 1.2329, but it's too early to talk about it, since the bears are in control of the market.
If the GBP/USD falls and there are no bulls at 1.2098, and for this the bears have everything they need, they just need some new trigger - all this will have a very strong impact on the technical picture, which will increase pressure on the pair. In this case, I recommend postponing long positions until the next support at 1.2042. I advise you to buy there only on a false breakout. You can open long positions on GBP/USD immediately for a rebound from 1.1993, or even lower - around 1.1938 with the goal of correcting 30-35 points within the day.
When to go short on GBP/USD:
The bears coped with their task yesterday and managed to break below 1.2152. Now you need to keep this level. In case the pound grows after receiving data on GDP in the first half of the day, forming a false breakout at the level of 1.2152 will provide the first entry point into short positions in continuation of the development of the bearish scenario and with the prospect of a return to 1.2098. Consolidating below 1.2098 and a reverse test from the bottom up will greatly affect the bulls' stop orders, which create another entry point for short positions with the goal of falling further to 1.2042, where I recommend partially taking profits. The area of 1.1993 will act as a more distant target, and upon reaching that area, the annual low at 1.1938 is just nearby.
In case GBP/USD grows and the bears are not active at 1.2152, we can only hope for strong statistics from the US and the nearest resistance at 1.2207. As practice shows, the main short positions on the pound are now seen during the US trading session. A false breakout at 1.2207 would provide a good short entry point for the pair to rebound downwards. In case traders are not active at 1.2207, another upsurge may occur amid the removal of stop orders of speculative bears. In this case, I advise you to postpone short positions to 1.2267. Selling GBP/USD immediately for a rebound can be seen from 1.2329, counting on the pair's rebound down by 30-35 points within the day.
COT report:
Before analyzing the technical picture of the pound, let's look at what happened in the futures market. The Commitment of Traders (COT) report for June 21 logged a reduction in both long and short positions, but there were more of the latter, which led to a slight decrease in the negative delta. Last week, inflation data in the UK confirmed the correctness of the Bank of England's position in relation to monetary policy. A sharp inflationary jump in May this year was not something surprising for traders, since even according to the official forecasts of the central bank, the consumer price index will exceed 11.0% by the end of the year. The big players, of course, took advantage of the moment and built up long positions as a result of another collapse of the pound, but now, according to the report, we see that there are fewer and fewer people willing to sell at the current lows, which plays on the pound's side. Apparently, the Federal Reserve's policy and its pace of raising interest rates will no longer surprise anyone, so it's time to think about buying cheaper risky assets. The COT report indicated that long non-commercial positions decreased by only 873 to 28,470, while short non-commercial positions decreased by 3,222 to 91,717. level -63,247. The weekly closing price increased and amounted to 1.2295 against 1.1991.
I recommend to read:
Indicator signals:
Moving averages
Trading is below the 30 and 50-day moving averages, indicating a continuation of the bear market.
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 area of 1.2152 will act as resistance. If the pair goes down, the lower border of the indicator around 1.2098 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.
