GBP/USD: plan for the European session on June 3. COT reports. Pound's further direction raises many questions. Bulls aim

To open long positions on GBP/USD, you need:

Several signals to enter the market were formed yesterday. Let's take a look at the 5-minute chart and analyze the entry points.

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Even in the first half of the day, you and I could observe a false breakout in the support area of 1.4142, which resulted in creating a signal to open long positions, however, this signal did not come to fruition and I did not see a large increase from this level. After some time, the bears took control of 1.4142, where it was tested upside down. This led to forming a signal to sell the pound in continuation of the downward trend. The downward movement was around 30 points, after which the market reversed, and so the pair failed to reach the target level.

After the bulls regained control over the level of 1.4142 in the afternoon, I was still waiting for a reverse test of this area from top to bottom in order for a signal to open long positions to appear. But alas, I did not wait for it and the market went up without me.

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Quite important reports for the UK economy on activity in the service sector, as well as a composite PMI index will be published today. Strong data will help the pound get out of the horizontal channel and a breakthrough above the resistance at 1.4188. If investors are disappointed by reports, then most likely the pressure on GBP/USD will increase, and we will watch the pair move down to support at 1.4149. Forming a false breakout on it generates a signal to open long positions in hopes of stopping the bearish trend and the restoration of the British pound. In such a scenario, one can count on an update of the resistance at 1.4188, which could not be exceeded yesterday. A breakthrough and a downward test of this level will open a direct path for GBP/USD to the highs of 1.4241 and 1.4310, where I recommend taking profits. If the pressure on GBP/USD returns, and the bulls are not active around 1.4149, then I recommend not to rush into long positions. The optimal scenario would be long positions immediately to rebound from a low like 1.4112, or even lower - from the level of 1.4055, counting on an upward correction of 25-30 points within the day.

To open short positions on GBP/USD, you need:

The primary task for the bears is to go beyond and test the 1.4149 area from the bottom up (by analogy with the sell, which I discussed above), which creates an entry point to short positions in hopes of sustaining the bear market observed yesterday. Such a scenario should plunge GBP/USD to a low like 1.4112, where I recommend taking profits. We can count on a test of further support at 1.4056 in the event of a sharp slowdown in activity in the UK services sector in May this year and a decline in the UK PMI composite index. The speech by Bank of England Governor Andrew Bailey, which will be held this afternoon, will also be important. We can say that the bulls have stopped the downward trend only after they regain control of the resistance at 1.4188. Therefore, the bears will have to focus on protecting this range. Forming a false breakout there will be a signal to open short positions in continuation of the bearish trend. In case the pound grows in the first half of the day and bears are not active around 1.4188, then it is best not to rush to sell: I advise you to postpone short positions until a high like 1.4241 is renewed, from which you can sell the pound immediately on a rebound, counting on a downward correction of 20-25 points inside day.

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The Commitment of Traders (COT) reports for May 25 showed that short positions decreased while long ones increased. Recent statements by representatives of the Bank of England that now is the time to think about curtailing support measures and raising interest rates surprised many traders, but this returned the demand for the British pound, and due to this, it managed to pull up the currency to annual highs. The pound was also supported by the news that from June 21 this year, the UK economy will be fully open and all restrictive measures due to Covid will be canceled. This will be a good bullish boost for retail sales and inflation. The upward potential of the pound will remain quite high amid this background, you just need to wait a little. The COT report indicates that long non-commercial positions increased from 63,027 to 64,193, but short non-commercial positions sharply decreased from 38,127 to 33,534, which indicates profit-taking and the bears leaving the market, after unsuccessful attempts to turn the market to their side. This is another advantage for the bulls and those who believe in the continuation of the medium-term upward trend. As a result, the non-commercial net position increased from 24,900 to 30,659. The closing price of last week did not change significantly and reached 1.41553 against 1.41479.

Indicator signals:

Trading is carried out in the area of 30 and 50 moving averages, which indicates the uncertainty of the market with the succeeding direction.

Moving averages

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

Surpassing the lower border of the indicator in the area of 1.4140 will lead to a new wave of decline for the pound. A breakthrough of the upper border of the indicator in the area of 1.4188 will cause the pair to rise.

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.
The material has been provided by InstaForex Company - www.instaforex.com

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