In my morning article, I turned your attention to 1.2628 and recommended making decisions with this level in focus. Now, let's look at the 5-minute chart and figure out what actually happened. A breakout of this level occurred without a downward retest. So, I did not open long positions. For the afternoon, the technical outlook has been revised slightly.
When to open long positions on GBP/USD:
GDP data was in line with forecasts. Industrial production turned out to be worse than expected. However, it did not affect the pound sterling. Now, traders are awaiting the Fed's rate decision. The central bank is widely expected to skip a rate increase for the first time in the last 15 months, which is bullish for the pound sterling. Its trajectory will also depend on Fed Chairman Jerome Powell's speech, which may limit the upward potential of the pair. The Bank of England will definitely raise the key rate next week. It makes the GBP/USD pair more attractive.
It is better to go long on the decline in GBP / USD, which may occur after the release of the US Producer Price Index. A false breakout of 1.2620 could give a buy signal in the continuation of the bullish trend. The pair may reach a high of 1.2675. A breakout and a downward retest of this level will force bears to leave the market, providing an additional buy signal. The pair is likely to rise to 1.2709, which will boost the uptrend. A more distant target will be the 1.2755 level. The pair is projected to grow to this level after the results of the Fed meeting.
If the pair declines to 1.2620 and bulls show no activity, the pressure on the pair will return. If producer prices remain high, it will also limit the upward potential of the pound sterling. In this case, I would advise you to postpone long positions until a breakout of the support level of 1.2574 where the moving averages are passing in positive territory. You could buy GBP/USD immediately at a bounce from 1.2527, keeping in mind an upward intraday correction of 30-35 pips.
When to open short positions on GBP/USD:
Sellers are unable to regain control amid a strong bullish bias. Hence, it would be wise not to rush with short positions in the current market conditions. If the US PPI remains at high levels, it might help bears to protect 1.2675. The pound sterling is aiming at this level now. It is better to go long there only after a false breakout. The pair could decline to the support level of 1.2620 formed today. A breakout and an upward retest of this level may trigger a downward correction and a sell signal. The pair is likely to fall to 1.2574. A more distant target will be the 1.2527 level where I recommend locking in profits. If GBP/USD rises and bears fail to protect 1.2675, bulls will continue to dominate the market. In this case, it would be better to postpone short positions until a false breakout of the resistance level of 1.2709. It may create new entry points into short positions. You could sell GBP/USD at a bounce from the May high of 1.2755, keeping in mind a downward intraday correction of 25-30 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 a further rise.
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 1.2590 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.
