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24.05.2022 09:03 AM
GBP/USD: plan for the European session on May 24. COT reports. Further growth of the pound raises quite a few questions

When to go long on GBP/USD:

Yesterday there was only one good signal formed to enter the market. Let's take a look at the 5-minute chart and see what happened. I paid attention to the level of 1.2574 in my morning forecast and advised you to make decisions on entering the market from it. Growth and a false breakout at the level of 1.2574 - all this led to an excellent signal to sell the pound. However, the downward movement was about 20 points, after which the bulls managed to achieve growth above 1.2574. As you can see on the chart, it was not possible to keep 1.2574 under control, and the reverse test from top to bottom took place along with a breakdown and return under 1.2574 – there is no signal for long positions. Because of all this, I had to revise the technical picture and the next levels. In the second half, due to a decrease in volatility, the pound did not test the boundaries I mentioned, from which I planned to make a decision to enter the market, so there were no new transactions.

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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 May 17 showed that both long and short positions have decreased - the decline of the latter turned out to be much greater. This suggests that the market may be gradually approaching the bottom, and also that traders are enjoying quite attractive prices and despite the whole situation in the UK and uncertainty, they are gradually looking at the market.

I have repeatedly noted the presence of a number of problems in the UK economy, as a rather difficult situation with inflation and slowdown in economic growth make the Bank of England rush between two fires. But it is worth noting that despite all this, BoE Governor Andrew Bailey, in his recent interview noted that the central bank is not going to refuse to raise interest rates in the near future. But the same cannot be said about the policy of the Federal Reserve. Rumors have spread that the central bank plans to "pause" the cycle of raising interest rates as early as September this year, which will definitely have a negative impact on the positions of the US dollar and partially weaken it.

The May 17 COT report indicated that long non-commercial positions decreased by -2,856 to 26,613, while short non-commercial positions decreased by -3,213 to 105,854. level -79,598 to 79,241. The weekly closing price increased from 1.2313 to 1.2481.

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Pound bulls can take advantage of good data on the UK economy and continue to build an upward trend in order to break through the nearest resistance at 1.2596, which was not done yesterday afternoon. In case the pair falls if we receive disappointing data on business activity in the manufacturing sector and the sector of services in the UK, as well as after weak data on retail sales from the Confederation of British Industry, the bulls will have to defend yesterday's support at 1.2541, just above which the moving averages play on the bulls' side. A false breakout at this level will give a buy signal that can keep the GBP/USD within the rising channel, as well as based on the breakdown and update of 1.2596. Consolidating above 1.2596 will strengthen the demand for the pound and lead to an increase in the area of rather large resistance at 1.2643. There bulls will take a break before the release of important statistics on the US, expected this afternoon.

A more distant target will be the area of 1.2692, where I recommend taking profits. However, we can only reach this level if a number of the bears' stop-orders are dismantled. In case the pound falls during the European session and lack of activity at 1.2541, in my opinion this is a more likely option, bulls do not need to panic. I advise you to postpone long positions until the next support at 1.2500. Forming a false breakout there will provide an entry point into long positions, counting on the continuation of the upward correction. You can buy GBP/USD immediately on a rebound from 1.2453, or even lower - in the region of 1.2396, counting on correcting 30-35 points within the day.

When to go short on GBP/USD:

The bears have received another serious blow, and now a lightning-fast response is needed from their side, otherwise the trend will continue. Opening short positions against the formation of a new upward trend should be done very carefully. The data for the UK can help with this today. Weak reports suggesting less activity in the economy could lead to a false breakout at 1.2596, which would provide a short entry point for the pair to drop and renew support at 1.2541. A breakdown and a reverse test from the bottom up of this level will bring down the GBP/USD to the lows: 1.2500 and 1.2453.

A more distant target will be the area of 1.2396, where I recommend taking profits. If the pair rises during the European session against the backdrop of strong data, it is best to postpone short positions to the level of 1.2643. I also advise you to open shorts there only in case of a false breakout. It is possible to sell GBP/USD immediately on a rebound from the 1.2692 high, counting on the pair's rebound down by 30-35 points within the day.

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I recommend to read:

Indicator signals:

Moving averages

Trading is conducted just above 30 and 50 moving averages, which indicates the bulls' problems with the pound's succeeding growth.

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

A breakthrough of the lower border of the indicator in the area of 1.2541 will increase pressure on the pair. If the pair grows, the upper border of the indicator around 1.2596 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.
Miroslaw Bawulski,
Chuyên gia phân tích của InstaForex
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