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20.05.2022 08:57 AM
GBP/USD: plan for the European session on May 20. COT reports. Bulls face a difficult level at 1.2509

Yesterday, several market entry signals were formed. Let's take a look at the 5-minute chart and see what happened. I paid attention to the level of 1.2361 in my morning forecast and advised you to make decisions on entering the market from it. I said that the lack of statistics will play on the side of bulls of the pound - and it happened. A breakthrough of 1.2361 took place, but on the reverse test from top to bottom, the bulls quickly took back this level. So there was no signal to go for. Nor was there a reverse top-down test for long positions. In the middle of the day a test and a false break at 1.2412 gave a sell signal, which, as you can see, led to losses. Then the technical picture was completely revised in the afternoon. However, in the middle of the US session, I managed to get a sell signal after forming a false breakout around 1.2493, but it also did not bring the expected result, since I did not see a quick downward correction.

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When to go long on GBP/USD:

Today, the pound has already released quite good data on the growth of retail sales for April this year, which exceeded the forecasts of economists, but even this has not yet allowed bulls to reach the nearest resistance, for which, it seems to me, is where the main struggle will unfold. If the pound does not actively rise in the near future, the bulls will have to think about protecting 1.2444. Below this level are moving averages that play on their side. If the pressure on the pound returns, forming a false breakout at 1.2444 will lead to a signal for long positions, counting on the continuation of the bull market with growth towards the resistance of 1.2509. You can expect a sharper spurt for the pair, but only after consolidating above this range with a reverse test from top to bottom, which will lead to dismantling the bears' stop orders and GBP/USD could rise to new weekly highs in the area of 1.2574 and 1.2633, where I recommend taking profits.

A more distant target will be the area of 1.2692. In the event of a decline in the pound and the absence of buyers at 1.2444, and such a scenario, it seems to me, is more likely, the pair will most likely be squeezed within a wide sideways channel, from which it will be quite difficult to break out. Therefore, I advise you not to rush into shopping. It is best to enter the market after a false breakdown in the area of 1.2390. You can buy GBP/USD immediately on a rebound only from the lower border of the channel 1.2339, or even lower - around 1.2280 and only with the aim of correcting 30-35 points within the day.

When to go short on EUR/USD:

Protecting 1.2509 will help the bears return to the market in order to build a downward correction to return the pair to the 1.2444 area. A false breakout at 1.2509 will be an ideal condition for opening short positions, counting on consolidating below 1.2444. A breakthrough and reverse test from the bottom to the top of this range creates another sell signal, which can very quickly return the pound to the low of 1.2390, opening a direct road to 1.2339.

A more distant target will be the area of 1.2280, the test of which will cross out the upward trend for the pair. But hopes that this scenario will come true without good fundamental statistics on the US is unlikely to succeed. With the GBP/USD growth option and no activity at 1.2509, another upsurge may occur against the backdrop of dismantling stop orders. In this case, I advise you to postpone short positions until the next major resistance at 1.2574. I also advise you to open short positions there only in case of a false breakout. You can sell GBP/USD immediately for a rebound from the high of 1.2633, counting on the pair's rebound down by 30-35 points within the day.

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COT report:

The Commitment of Traders (COT) report for May 10 showed that long positions decreased while short positions had increased, which caused the negative delta to increase further. The presence of a number of problems in the economy and a rather difficult situation with inflation are forcing investors to get rid of the British pound, which is very seriously losing its appeal against the backdrop of demand for safe haven assets and more profitable instruments. The monetary policy of the Federal Reserve, aimed at tightening the cost of borrowing, will continue to support the US dollar, pulling the British pound lower and lower. The actions of the Bank of England to raise interest rates have not yet brought the desired result, and talk that, due to serious economic difficulties, the central bank may even suspend the normalization of monetary policy, scare investors even more. As I have repeatedly noted, future inflationary risks are now quite difficult to assess also because of the difficult geopolitical situation, but it is clear that the consumer price index will continue to rise in the coming months. The situation in the UK labor market, where employers are forced to fight for each employee, offering ever higher wages, is also pushing inflation higher and higher. The May 10 COT report indicated that long non-commercial positions decreased by -4,067 to 29,469, while short non-commercial positions rose by 1,718 to 109,067. This led to an increase in the negative value of the non-commercial net position from - 73,813 to -79,598. The weekly closing price fell from 1.2490 to 1.2313.

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Indicator signals:

Moving averages

Trading is conducted above the 30 and 50-day moving averages, which indicates the bulls' attempt to continue the upward trend.

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

In case of a decline, the lower border of the indicator around 1.2425 will act as support. In case of growth, the area of 1.2510 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,
Especialista em análise na InstaForex
© 2007-2024
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