When to go long on GBP/USD:

Yesterday, several good market entry signals were formed. Let's take a look at the 5-minute chart and see what happened. Given that the pair spent the whole day within the horizontal channel, trading in it brought good profit. I paid attention to the level of 1.2624 in my morning forecast and advised you to make decisions on entering the market from it. The decline and a false breakout forming at the level of 1.2624 amid the absence of important fundamental statistics was quite expected. This resulted in a great buy signal and a sharp upward move worth over 30 points at the time of writing. If you missed the first signal, you could always take long positions on the second decline and false breakout around 1.2624. In the afternoon, the bears made another unsuccessful attempt to break through 1.2624, which was the third signal to open long positions with the pound rising by more than 30 points.

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 24 showed that long positions decreased while short positions increased. However, this did not significantly affect the balance of power. Despite the pound's growth since the middle of this month, the market remains completely under the bears' control.

Apparently, only the absence of fundamental statistics, to which the pair has been reacting rather negatively lately, and a slight profit-taking from annual lows have enabled the GBP/USD to recover slightly. There are no other objective reasons for growth. The economy continues to slide into recession, inflation hits new records, and the cost of living in the UK is steadily rising. The Bank of England continues to rush between two fires, but despite all this, BoE Governor Andrew Bailey continues to say that the central bank is not going to refuse to raise interest rates yet. The widespread rumors that the US central bank plans to "pause" the cycle of raising interest rates in September this year continue to gain momentum, which puts some pressure on the US dollar and leads to the strengthening of the pound.

The May 24 COT report indicated that long non-commercial positions decreased by -667 to 25,936, while short non-commercial positions rose by 454 to 106,308. This led to an increase in the negative value of the non-commercial net position from -79,241 to -80,372. The weekly close rose from 1.2481 to 1.2511.

Given yet another lack of important statistics on the UK, which no longer work on the bulls' side, it is quite possible that the pressure on the pound will intensify - especially considering that today is the last day of May. Bulls may take profits, leading to a larger correction. Considering how actively the bears tried to return below 1.2624 yesterday, I advise you to count on further correction of the pair. Against this background, the bulls will have to defend a major support at 1.2587, since if they miss it, a new major sell-off of the pound is unlikely to be avoided. A false breakout at this level will provide a buy signal that can keep GBP/USD within the rising channel, as well as counting on a return to the level of 1.2624, slightly above which the moving averages are already playing on the bears' side.

Consolidation above 1.2624 will strengthen the demand for the pound and lead to growth to the rather large resistance area of 1.2663. There bulls will take a break before the US statistics expected this afternoon. A more distant target will be the area of 1.2709, where I recommend taking profits. However, we will be able to get to this level only if a number of stop-orders of bears are dismantled.

In case the pound falls during the European session and the lack of activity at 1.2587, 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 1.2553. Forming a false breakout there will provide an entry point into long positions, counting on the continuation of the upward trend. You can buy GBP/USD immediately on a rebound from 1.2517, or even lower - in the area of 1.2481 with the goal of correcting 30-35 points within the day.

When to go short on GBP/USD:

Although the bears do not exert serious pressure on the pair, they managed to limit its upward potential. This could lead to a larger and longer downward correction later this month. Opening short positions against the upward trend is now possible only after forming a false breakout at 1.2624, which was brought under control in today's Asian trading. This will provide an entry point to short positions with the goal of a further decline in the pair and a subsequent support update at 1.2587. There will be a bigger struggle for this level, as the bulls will try to build the lower border of the new horizontal channel there. Only a breakdown and reverse test of this level from below will bring the GBP/USD down to a low like 1.2553, while maintaining the possibility of a test and support at 1.2517. A more distant target will be the area of 1.2481, the update of which will jeopardize the entire upward potential of the pair, which has been observed since May 13. I recommend taking profit there.

If the pair rises during the European session and there are no bears at 1.2624, I advise you to postpone short positions until this month's high at 1.2663. I advise you to sell the pound there only after a false breakout. You can open short positions immediately for a rebound from a new monthly high of 1.2709, or even higher - from 1.2755, based on a correction of the pair down by 30-35 points within the day.

I recommend to read:

Indicator signals:

Moving averages

Trading is below 30 and 50 moving averages, which indicates the bulls' likely 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 1.2610 will increase pressure on the pair. If the pair grows, the upper border of the indicator around 1.2665 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.