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01.06.2022 08:53 AM
GBP/USD: plan for the European session on June 1. COT reports. The pound plunged against the US dollar, but it's too early to panic

Yesterday, several excellent 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 1.2624 in my morning forecast and advised you to make decisions on entering the market from it. Growth 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 sell signal and a sharp downward move of over 40 points. The bulls tried to protect 1.2587 in the afternoon, which seemed to lead to a signal to buy the pound, but a good upward move did not take place. After some time, the trade moved below 1.2587 and it became obvious that it was necessary to close long positions and open shorts. As a result, the pair fell by more than 30 points. Selling by the close of the day after a false breakout from 1.2624 also took place, but it did not work out to grab much from the market.

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When to go long on GBP/USD:

Today, the pound may continue its downward correction, but much will depend on the statistics released in the morning. Traders have not reacted very positively to any statistics lately, so don't be surprised if the pair crashes to another weekly low after the release of the UK Manufacturing PMI report for May. But in case we receive good data, we can count on the pound's growth. If there is no active upward movement in the near future, bulls will have to think about protecting the level of 1.2586 formed on the basis of yesterday. Forming a false breakout there will lead to a signal to open new long positions, counting on the continuation of the bullish trend with growth to the nearest intermediate resistance at 1.2613, where the moving averages play on the bears' side. It is possible to expect a sharper movement from the pair, but only after consolidating above this range with a reverse test from top to bottom, which will open the way to the monthly high of 1.2655, and will also allow us to count on updating the resistances of 1.2709 and 1.2755, where I recommend taking profits. The next target will be 1.2798.

If the pound falls and there are no bulls at 1.2568, and I think we will pass this level quite easily - if we get a rather negative report on the UK economy, the pressure on the pair will seriously increase. This will return to 1.2526. Therefore, I advise you not to rush into long positions. It is best to enter the market after a false breakout at this level. You can buy GBP/USD immediately on a rebound only from 1.2481, or even lower - in the area of 1.2427 with the goal of correcting 30-35 points within the day.

When to go short on GBP/USD:

The bears need to confirm their dominance in the market at least in the current situation, and for this it is necessary to protect the nearest resistance at 1.2613. This level may be tested after the release of data on activity in the manufacturing sector in the UK, so forming a false breakout there will provide the first signal to open new short positions in anticipation of a further downward correction of the pair at the beginning of this month. An equally important task is to consolidate below 1.2568. Therefore, a breakthrough and reverse test from the bottom up of this range creates a sell signal, allowing GBP/USD to return to the 1.2526 area, opening a direct path to a low like 1.2481, where I recommend taking profits. A farther target would be a low of 1.2427, which would completely negate the bull market.

If GBP/USD grows and traders are not active at 1.2613, another upsurge may occur amid the bears' stop orders being dismantled, who are counting on a larger drop in the pair this week. In this case, I advise you to postpone short positions to last month's high at 1.2655. I advise you to sell the pound there in case of a false breakout. Short positions immediately for a rebound can be made from a high like 1.2709, or even higher - from 1.2755, based 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 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 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.

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Indicator signals

Moving averages

Trading is below the 30 and 50-day moving averages, which indicates a continuation of the pair's correction.

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 1.2568 will act as support. In case of growth, the area of 1.2625 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,
Chuyên gia phân tích của InstaForex
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