GBP/USD: plan for the European session on May 21. COT reports. Pound returns to 1.4201 high and aims to go beyond

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

Yesterday there was only one signal to buy the pound in the afternoon. Let's take a look at the 5-minute chart and analyze the entry point.

Due to the low volatility of the market in the first half of the day, the pound did not manage to reach the levels I indicated. In this regard, no signals were formed to enter the market. Buyers' attempt to renew the resistance at 1.4147 was unsuccessful and the market stopped rising at the area of 1.4140, from where there was a large sell-off of the pair to the lows of the day. The second half of the day was much more interesting: the bulls managed to go beyond and settle above the resistance of 1.4143, which I had previously revised in my afternoon forecast from 1.4147, after which a reverse test of this level from top to bottom resulted in creating an excellent entry point into long positions... As a result, the growth was about 50 points.

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Despite all of the bears' efforts, the bulls have taken control of the market and will most likely try to surpass new monthly highs today. This will be helped by good data on the recovery of activity in the manufacturing and service sectors in the UK, which may go beyond the forecasts of economists, as the economy is gradually gaining growth and strength. All the bulls need to do is to rise above the resistance at 1.4201, which could not be done a couple of days ago. A breakthrough and test of this level from top to bottom can result in new long positions being opened in continuation of the upward trend, with the nearest target to exit to the high of 1.4257, where I recommend taking profits. The ability to surpass this range will depend on the fundamentals of the US economy in the afternoon. But as we all know, lately good data on the growth of indicators in the US leads to the strengthening of the euro, not the US dollar, as traders continue to bet on risky assets. If GBP/USD breaks out of 1.4257, the next major resistance will be seen in the 1.4310 area. In case the pound falls in the first half of the day, the bulls should be present in the area of 1.4151, where the moving averages, playing on the side of buyers, pass. Forming a false breakout there creates an excellent entry point into sustaining the upward trend. The pair might be under pressure if the bulls are not active there. In this case, I do not recommend rushing into long positions: the optimal scenario would be long positions for a rebound from a large low like 1.4101, counting on an upward correction of 25-30 points within the day.

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

If we see the pound rising in the first half of the day, then the best option for opening short positions will be forming a false breakout in the resistance area of 1.4201. There is no reason to count on bad data on the UK PMI, but the bulls will be active only if the indicators exceed the forecasts of economists. If not, failure to rise above 1.4201 creates a signal to sell the pound there for the purpose of pulling down the pair to the middle of the horizontal channel at 1.4151, where I recommend taking profits. If the bears manage to break even below this range, then only its reverse test from the bottom up can create an additional entry point into short positions counting on the pair's return to the area of the 1.4101 low. If the bears are not active in the area of 1.4201 and the upward trend continues, then I advise you to refrain from short positions until the next high in the area of 1.4257 is renewed, from which you can open short positions immediately on a rebound, as well as from the next large high at 1.4310, counting on a downward correction at 20-25 points within the day.

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The Commitment of Traders (COT) reports for May 11 revealed that both long and short positions have increased. All this happened against the background of a slight downward correction from the pair, which was fully won back after we received good indicators on the rate of contraction of the UK economy in the first quarter 2021. Last month's growth also gave investors hope that the British pound will continue to gain strength. And almost all quarantine restrictions will be lifted in the UK at the beginning of summer, given the good pace of vaccination against coronavirus, we can assume a sharp recovery in GDP in the second quarter of 2021, which will be the highest in the history of the indicator. Such news strengthens investor confidence in the British pound and its prospects. The COT report indicated that long non-commercial positions rose from 52,262 to 64,947. At the same time, short non-commercial positions increased from 32,414 to 36,771, resulting in a non-commercial net position increased to 28,176 from 19,848 a week earlier. Last week's closing price also jumped to 1.41308 against 1.39033.

Indicator signals:

Trading is carried out above 30 and 50 moving averages, which indicates an attempt by the bulls to continue the upward trend.

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 upper border of the indicator in the area of 1.4220 will lead to a new wave of growth of the pound. Surpassing the lower border of the indicator in the area of 1.4120 will increase the pressure on the pair.

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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