In the morning article, I highlighted the level of 1.2596 and recommended taking decisions with this level in focus. Now let's look at the 5-minute chart and try to figure out what actually happened. A rise and a false breakout of 1.2596, as well as disappointing data on the UK PMI Manufacturing Index, gave an excellent sell signal. The pound sterling declined by 120 pips. Shortly after, a new sell signal appeared after a correction and an upward test of 1.2500. As long as the pair is trading belowthis level, the downward movement will remain intact. If bulls push the price above 1.2500, it is recommended to act according to a new scenario, which I will describe in detail below.

What is needed to open long positions on GBP/USD

As I have already mentioned, weak data on the UK PMI Manufacturing and Services Indexes caught traders off guard. Both indexes showed contraction. Traders were betting on further growth of the pair in the short term. In the afternoon, the US will unveil the same reports as well as the Composite PMI Index. It may lead to another surge in volatility. However, in the current situation, when the pound sterling has lost more than 120 pips and speculators are unwilling to buy it, there could hardly be any drastic changes. As I noted, the technical outlook has slightly changed. If the pair drops lower, only a false breakout of 1.2453, a large support level, will give a buy signal. In this case, there may be a resumption of the bull market with a prospect of a rise to the resistance level of 1.2515, formed today in the morning. A sharper upward reversal looks likely if Fed Chairman Jerome Powell makes some hawkish statements. He is expected to debunk rumors that the Fed may take a pause in its monetary policy tightening cycle this autumn. A consolidation above 1.2515 and a downward test could erase sellers' stop orders. As a result, the pair is likely to reach 1.2554 with an upward target of 1.2596 where I recommend locking in profits. The more distant target will be the 1.2643 level. If the pound sterling decreases and bulls show no activity at 1.2453, the pressure on the pair will escalate. The bulls may also lose steam. Therefore, it is better to refrain from opening long positions for a while. It is recommended to enter the market after a false breakout of 1.2396. It is possible to buy GBP/USD immediately at a bounce from 1.2339 or even a low around 1.2280, keeping in mind an upward intraday correction of 30-35 pips.

What is needed to open short positions on GBP/USD

Given that bears have dealt a significant blow to the positions of buyers, they are likely to increase pressure. So, a further fall of the pair looks quite possible. They just need a reason to push the pair lower. The US PMI data may help them achieve it. Currently, only the protection of 1.2515, the nearest resistance level, will help sellers regain the upper hand. If so, there could be a downward correction to 1.2453. A false breakout of 1.2515 will signal new short positions against the trend as traders will bet on a drop below 1.2453. If the price slides to 1.2453 without testing 1.2515, bulls will try to renew the upward trend from there. Thus, be careful with short positions. Only a breakout and an upward test of this level will give an additional sell signal. If this assumption is correct, the price may quickly return to 1.2396. It will open the way to 1.2339 where I recommend locking in profits. A more distant target will be the 1.2280 level. A test of this level will undermine the uptrend. However, this scenario is unlikely to occur without positive US fundamental statistics If GBP/USD rises and bears show no energy at 1.2515, sellers may face problems here as they will get nervous and start closing their short positions. In this case, I advise you to postpone short positions until the next major resistance of 1.2554. I would also advise you to open short positions there only after a false breakout. It is possible to sell GBP/USD immediately at a bounce from a high of 1.2596, keeping in mind a downward intraday correction of 30-35 pips.

COT report

The COT report (Commitment of Traders) for May 17 logged a decline in the number of long and short positions. However, a drop in short ones turned out to be bigger. It means that the price may be gradually approaching the bottom. Besides, the weaker pound sterling is more attractive to buyers Despite economic jitters in the UK and market uncertainty, speculators are now less afraid of risks. I have noted more than once that the UK economy is going through hard times, facing numerous economic problems. It is coping with galloping inflation and slowing economic growth. The Bank of England is literally stuck between the rock and the hard place. Notably, BoE Governor Andrew Bailey in his recent interview said that the regulator would continue to raise the key rate despite the existing risks. At the same time, there are rumors that the Fed plans to take a break in its monetary policy tightening cycle in September this year. If so, the US dollar is sure to weaken significantly. The COT report for May 17 revealed that the number of long non-commercial positions decreased by -2,856 to the level of 26,613, while the number of short non-commercial positions slid by -3,213 to the level of 105,854. This led to a drop in the negative delta of the non-commercial net position to -79,241 from - 79,598. The weekly closing price rose to 1.2481 from 1.2313

Signals of technical indicators

Moving averages

GBP/USD is trading below 30- and 50-period moving averages. It means that the bears don't give up attempts to regain momentum.

Remark. The author is analyzing the period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.

Bollinger Bands

In case of a rise, the level around 1.2550 will act as resistance.

Definitions of technical indicators

• Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart.
• Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is displayed as the green line.
• MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The
• MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal
• line".
• Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving
• average.
• Non-commercial traders - speculators such as retail traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.
• Non-commercial long positions represent the total long open position of non-commercial traders.
• Non-commercial short positions represent the total short open position of non-commercial traders.
• The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.