I highlighted the 1.2675 level in my morning forecast and planned to make entry decisions based on it. Let's look at the 5-minute chart and see what happened there. The decline and formation of a false breakout around 1.2675 led to a signal to buy the pound. However, as you can see from the chart, the pair did not experience significant growth. The technical picture still needs to be revised for the second half of the day.
To Open Long Positions in GBP/USD:
The lack of UK statistics and active bullish actions around last week's low kept the hope for a pair recovery in the second half of the day. However, we still have data on the Empire Manufacturing Index and speeches from FOMC members John Williams and Patrick T. Harker. Strong statistics and a hawkish tone from the policymakers will lead to another decline in the pound, and 1.2675 may not hold. Only another false breakout formation around this area, similar to what I discussed above, will give a point to enter long positions to return to the 1.2691 level. A breakout and reverse test from top to bottom of this range will be suitable for buying, targeting to reach 1.2720, where the moving averages are located, acting in favor of sellers. The farthest target will be the 1.2751 area, where I plan to take profits. In the scenario of a GBP/USD decline and a lack of activity from bulls at 1.2675 in the second half of the day, the pound risks entering a bearish market stage, which will only increase pressure on the pair. This will also lead to a decline and a retest of the next support at 1.2631. Only the formation of a false breakout will be a suitable condition for opening long positions. I plan to buy GBP/USD immediately on a rebound from the 1.2606 minimum with a 30-35 point correction target within the day.
To Open Short Positions on GBP/USD:
Sellers control the market, and to continue the bearish trend, they need to defend the 1.2691 level, which the pound may visit in the second half of the day. The formation of a false breakout there after weak US statistics will be a suitable option for opening short positions, aiming for a decline to the support at 1.2657. A breakthrough and reverse test from the bottom to the top of this range will deal another blow to buyer positions, leading to a stop-loss trigger and opening the way to 1.2631 – the new weekly low. The farthest target will be the 1.2606 area, where I will take profits. Testing this level will also indicate a strong bearish market. In the scenario of a GBP/USD rise and no activity at 1.2691 in the second half of the day, buyers will try to stop the bearish frenzy. In this case, I will postpone sales until a false breakout at 1.2720. If there is no downward movement, I will sell GBP/USD immediately on a rebound from 1.2751, targeting a 30-35 point downward correction within the day.
The COT report (Commitment of Traders) for June 4 showed an increase in long positions and a decrease in short positions. Many economists continue to bet that the Bank of England will cut interest rates in late summer - early autumn of this year. However, the key moment for determining the pound's direction will likely be the outcome of the upcoming Federal Reserve meeting, which will give the pair momentum for the next month. The fact that pound buyers withstood the sell-off observed after recent US labor market data indicates the presence of large players betting on further growth of GBP/USD. Therefore, the hope for a bullish market for the pound remains. The latest COT report states that long non-commercial positions increased by 9,077 to 102,118, while short non-commercial positions decreased by 8,731 to 58,731. As a result, the spread between long and short positions fell by 5,086.
Indicator Signals:
Moving Averages:
Trading is conducted below the 30 and 50-day moving averages, indicating a further decline in the pair.
Note: The author considers the period and prices of moving averages on the hourly chart H1, which differs from the general definition of classical daily moving averages on the daily chart D1.
Bollinger Bands:
In case of a decline, the lower boundary of the indicator, around 1.2669, will act as support.
Indicator Descriptions
- Moving Average (MA): Determines the current trend by smoothing volatility and noise. Period 50. Marked in yellow on the chart.
- Moving Average (MA): Determines the current trend by smoothing volatility and noise. Period 30. Marked in green on the chart.
- MACD Indicator (Moving Average Convergence/Divergence): Fast EMA period 12, Slow EMA period 26, SMA period 9.
- Bollinger Bands: Period 20.
- Non-commercial Traders: Speculators such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain criteria.
- 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: The difference between short and long positions of non-commercial traders.
