There were several excellent entry points last Friday. Now, let's look at the 5-minute chart and figure out what actually happened. In my morning article, I turned your attention to 1.0889 and recommended making decisions with this level in focus. A rise and a false breakout of this level gave an entry point into short positions. The downward movement was only about 15 pips. Growth and a false breakout of 1.2837 in the afternoon created a sell signal. After that, the pair declined by more than 35 pips.
When to open long positions on GBP/USD:
Bulls are increasing their long positions even at swing highs amid expectations of a rate increase by the BoE. They also expect the regulator to hint at further monetary tightening. Today, the economic calendar for the UK is empty again. This is beneficial for bulls. In the morning, I would advise you not to rush with long positions. Large traders will enter the market only if there are signs of correction near the support level of 1.2802, where the moving averages are passing in positive territory. A false breakout of this level could provide an entry point for long positions in the continuation of the uptrend. In this light, the target level will be the resistance level of 1.2842. A breakout and consolidation above this level may give an additional buy signal with a jump to a monthly high of 1.2876. It will only bolster the uptrend. A more distant target will be the 1.2911 level where I recommend locking in profits.
If the pair declines to 1.2802 and bulls fail to protect this level, the pressure on the pound sterling will increase before the BoE meeting. However, it will hardly lead to a trend reversal. The pair is likely to slide into the sideways channel. In this case, only the protection of 1.2759 as well as a false breakout of this level may create entry points for long positions. You could buy GBP/USD at a bounce from 1.2713, keeping in mind an upward intraday correction of 30-35 pips.
When to open short positions on GBP/USD:
Bears defended another monthly high last Friday. However, they failed to regain control. I would advise you to sell the pound sterling today only after a rise to the resistance level of 1.2842, a false breakout of this level, and the divergence of the MACD indicator. A fall from this level should be quite rapid. If there is no downward movement to 1.2802 within a few hours after the signal, it is better to close short positions in such a bull market. Only a breakout and a downward retest of 1.2802, where the moving averages are also passing, will force bulls to close their positions. It could increase pressure on GBP/USD, giving a sell signal with a correction to 1.2759. A more distant target is a low of 1.2713 where I recommend locking in profits.
If GBP/USD rises and bears fail to defend 1.2842, which is also possible, bulls will continue to control the market, anticipating the pair to reach monthly highs. In this case, it would be wise to postpone short positions until a false breakout of the resistance level of 1.2876. If there is no downward movement there, you could sell GBP/USD at a bounce from 1.2911, 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 1.2800 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.
