On Friday, the pair formed several entry signals. Let's have a look at the 5-minute chart and see what happened there. In my morning review, I mentioned the level of 1.2414 as a possible entry point. A rise to this level and its false breakout formed a great sell signal in line with the bearish trend. Yet, at the end of the week, traders were reluctant to add more short positions, just as I suggested in my morning review. After a decline of 20 pips, GBP/USD recovered again. In the second half of the day, a sell position opened at 1.2444 was closed with losses as the decline was preceded by a rapid surge in the price.

For long positions on GBP/USD:

The recent remarks made by Jerome Powell, Chairman of the Federal Reserve, along with the anticipated correction have eased the pressure on the British pound. However, the market remains under the control of sellers. Therefore, traders should act cautiously, particularly by considering a bearish approach rather than going against the trend from the current highs. Today, the absence of any macroeconomic data from the UK is expected to favor the pound buyers. However, I will open positions only in the event of a decline and the formation of a false breakout around the nearest support level at 1.2423 where converging moving averages favor the bulls. Only under these circumstances can we anticipate a recovery in the pair towards the 1.2469 level. A breakout and consolidation above this range will provide an additional buy signal with a surge towards 1.2507. The ultimate target would be the area of 1.2542 where profit-taking is recommended.

If the pair declines towards the 1.2423 level and buyers are idle at this point, the downtrend will continue. In this case, buying opportunities will be postponed until the price hits the next significant level at 1.2392, representing the monthly low. Long positions should only be opened after a false breakout. I'm planning to buy GBP/USD immediately after a rebound from the 1.2353 level, considering an intraday correction of 30-35 pips.

For short positions on GBP/USD:

Despite a slight retreat by the bears, the overall market conditions remain largely unchanged. At best, trading is expected to continue within a sideways range. Given the absence of statistical data in the first half of the day, I will hold sell positions open until a false breakout of the nearest resistance at 1.2469 formed last Friday. The price is likely to decline quickly. If there is no significant selling pressure, it is advisable to exit short positions. In this case, the bears' target will be the low of 1.2423. A breakout and a subsequent upward retest of this range will further intensify the selling pressure on GBP/USD, providing a selling signal with a decline towards 1.2392. The ultimate target remains the low of 1.2353 where profit-taking is recommended.

In the event of an upward move in GBP/USD and a lack of selling activity at 1.2469, it is best to postpone short positions until the price tests a larger resistance level at 1.2507. A false breakout of this range will provide an entry point into short positions. If there is no downward movement at this point, I will be selling GBP/USD on a rebound from the high of 1.2542, considering a downward correction in the pair of 30-35 pips within the day.

COT report

The Commitments of Traders report for May 9 recorded an increase in both long and short positions. Although the Bank of England's decision to raise interest rates is not yet reflected in these data, the active rise in long positions proves the presence of traders willing to buy the pound even at current levels. Given a noticeable correction at the end of last week, the demand for the pound may increase. The latest COT report states that short positions of the non-commercial group of traders grew by 12,900 to 71,561, while long positions jumped to 9,437. This led to an increase in the non-commercial net position to 4,528 against 1,065 recorded a week earlier. The pair resumed growth after a slight decline, which will have a positive impact on the pound in the future. The weekly closing price rose to 1.2635 against 1.2481.

Indicator signals:

Moving Averages

Trading above the 30- and 50-day moving averages indicates an upward correction in the pair.

Please note that the time period and levels of the moving averages are analyzed only for the H1 chart, which differs from the general definition of the classic daily moving averages on the D1 chart.

Bollinger Bands

In case of a rise, the upper band of the indicator at 1.2545 will serve as resistance.

Description of indicators:

• A moving average of a 50-day period determines the current trend by smoothing volatility and noise; marked in yellow on the chart;

• A moving average of a 30-day period determines the current trend by smoothing volatility and noise; marked in green on the chart;

• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA with a 12-day period; Slow EMA with a 26-day period. SMA with a 9-day period;

• Bollinger Bands: 20-day period;

• Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements;

• Long non-commercial positions represent the total number of long positions opened by non-commercial traders;

• Short non-commercial positions represent the total number of short positions opened by non-commercial traders;

• The non-commercial net position is the difference between short and long positions of non-commercial traders.