Yesterday, there were several excellent entry points. Now, let's look at the 5-minute chart and figure out what actually happened. In my morning article, I turned your attention to 1.2553 and recommended making decisions with this level in focus. A breakout and a downward retest of 1.2553 led to a buy signal, which resulted in an upward movement of 40 pips. In the afternoon, a false breakout of 1.2596 gave a sell signal. After that, the pair went down by about 20 pips.
When to open long positions on GBP/USD:
Today, the UK will release a batch of fresh reports, namely GDP and industrial production. They could help the pound sterling rise higher. Positive figures will certainly confirm economists' expectations of the economy returning to expansion at the end of the year. If so, the country could avoid a recession even amid monetary tightening.
However, the pressure on the pair will escalate if the reports turn out to be downbeat. In this case, the pair is likely to start a correction and reach the support level of 1.2573 where the moving averages are benefiting bulls. A false breakout there will give an entry point into long positions in the continuation of the bullish trend. The target level will be the resistance level of 1.2628. A breakout and consolidation above this level may provide an additional buy signal with a jump to 1.2674, bolstering the uptrend. A more distant target will be the 1.2709 level. The test of this level will take place only after the announcement of the Fed's rate decision. At this level, I recommend locking in profits.
If the pair declines to 1.2573 and bulls show no activity, the pound sterling is likely to face strong bearish pressure. However, any serious technical changes before the Fed's meeting will hardly occur. In this case, only the protection of 1.2527, as well as a false breakout, will create new entry points into long positions. You could buy GBP/USD at a bounce from 1.2479, keeping in mind an upward intraday correction of 30-35 pips.
When to open short positions on GBP/USD:
Sellers will barely regain control even if GDP figures are weak. If the Fed keeps the rate unchanged, it will boost demand for risk assets. It would be better to sell if the pound sterling breaks through the resistance level of 1.2628. At this level, large sellers could enter the market. A false breakout of this level as well as the divergence on the MACD indicator will be a signal to open short positions, which may lead to a drop to 1.2573. Only a breakout and an upward retest will force bulls to close positions. It may return pressure on GBP/USD before the Fed meeting. It could give a sell signal with a fall to 1.2527. A more distant target will be the 1.2479 level where I recommend locking in profits. If GBP/USD climbs and bulls fail to protect 1.2628, which is more likely, we can expect a further rise of GBP/USD. In this case, I would advise you to postpone short positions until a false breakout of 1.2674. It may create new entry points into short positions. If there is no downward movement there, you could sell GBP/USD at a bounce from 1.2709, keeping in mind a downward intraday correction of 30-35 pips.
COT report
According to the COT report (Commitment of Traders) for June 6, there was a drop in short and long positions. The pound sterling has risen markedly recently. It means that investors are betting on further aggressive tightening by the BoE. Risk appetite is growing amid expectations that the economy could avoid a recession this year. The Fed is widely expected to take a pause in the tightening cycle. It is extremely bullish for GBP/USD. The latest COT report showed that short non-commercial positions decreased by 4,056 to 52,579, while long non-commercial positions fell by 5,257 to 65,063. It led to a slight decline in the non-commercial net position to 12,454 against 13,235 a week earlier. The weekly price rose to 1.2434 against 1.2398.
Indicators' signals:
Trading is carried out above the 30 and 50 daily moving averages, which indicates an uptrend.
Moving averages
Note: The period and prices of moving averages are considered by the author on the H1 (1-hour) chart and differ from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
If GBP/USD declines, the indicator's lower border at 1.2572 will serve as support.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked 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 the short and long positions of non-commercial traders.
