04.05.202208:11 Forex Analysis & Reviews: GBP/USD: trading plan for European session on May 4. Commitment of Traders (overview of yesterday trades). Bears exert pressure on GBP

Yesterday, there were several good entry points. Now let's look at the 5-minute chart and try to figure out what actually happened. In the morning article, I highlighted the level of 1.2524 and recommended taking decisions with this level in focus. The first attempt of the bears to push the pair to 1.2524 led to a false breakout and a sell signal. However, upbeat industrial data limited the downward momentum. So, the pound sterling shed about 20 pips. Shortly after, the bulls managed to push the pair above 1.2524 after a downward test. As a result, a buy signal appeared but the entry point turned out to be unprofitable. After moving up by 10 pips, the bears regained ground. In the second half of the day, the sellers defended 1.2550, returning the pair to this level. It gave a sell signal. The pair dropped by about 60 pips. The downward movement slowed down only near the support level of 1.2491. A false breakout led to long positions. However, I decided to ignore the signal as it was the middle of the American session. Therefore, a sharp rise was unlikely at the end of the day.

What is needed to open long positions on GBP/USD

The bulls are losing steam. It means that they could be unable to facilitate an upward correction in the near future. They failed to protect 1.2503 yesterday. As a result, the pressure on GBP/USD has increased again today. The trajectory of the pair will mainly depend on the outcome of the FOMC meeting, which we will discuss in more detail in the afternoon. Today, during the European session, traders are anticipating a batch of economic reports that may adversely affect the British currency. If the figures are worse than expected, the pound sterling is sure to decline. Only in case of the positive M4 money supply, mortgage approvals, and net loans reports, the pound sterling may recover to 1.2503. At this level, there are moving averages that are passing in the negative territory. A breakout and consolidation above this level with a downward test will give an entry point into long positions. If so, the pair may break through the 1.2560 level where I recommend profit-taking. A further rise towards 1.2610 looks extremely unlikely, especially before the FOMC meeting. The breakout of 1.2610 will open the way to 1.2684. If the pair dips, bulls need to protect the level of 1.2440. Although I do not expect them to show any activity, a false breakdown at this level will provide a buy signal with the prospect of an upward reversal to 1.2503. If bulls show no energy at 1.2440, I would advise you not to rush into purchases. It is possible to open long positions immediately for a rebound only at 1.2381, keeping in mind an upward intraday correction of 25-30 pips.

What is needed to open short positions on GBP/USD

The main goal of the sellers today will be a breakout of the nearest support level of 1.2440. If they succeed, they will regain control. A breakout and an upward test of 1.2440 will give a sell signal. If fundamental statistics for the UK are weak, GBP/USD is likely to tumble to 1.2381, a new yearly low. If this scenario comes true, there will be a significant decrease in long positions. A breakout of this level may also push the pair to a low of 1.2221 where I recommend profit-taking. A more distant target will be the 1.2256 level. If GBP/USD climbs, the bears will do everything to prevent a breakout above the resistance level of 1.2503. At this level, the moving averages are passing in the negative territory. The breakout of 1.2503 will boost the upward correction, triggering a sharp fall in stop orders. Therefore, only a false breakout will generate a sell signal and cement the bearish momentum. If bears show no activity at 1.2503, the bulls may try to push the pound sterling even higher. If so, I would advise you to postpone short positions until the next resistance level of 1.2560. It is better to open short positions only in case of a false breakout. It is recommended to sell GBP/USD immediately for a rebound from the low of 1.2610, keeping in mind a downward intraday correction of 30-35 pips.

COT report

The COT report (Commitment of Traders) for April 19 logged an increase in both short and long positions. However, the number of short positions exceeded the number of long ones. It is visible on the chart. The US economy is going through hard times. Last week, BoE Governor Andrew Bailey confirmed it in his speech. His remarks that the economy is heading towards recession were the last straw for bulls. They remained in control in the second half of April. However, after Bailey's comments, the pair slipped to a low. It dropped below the 26th pattern amid a sell-off. However, the pair is projected to reach new lows. The consumer price index is steadily moving towards double-digit indicators. Market uncertainty is also growing due to supply chain disruptions against the background of a new coronavirus wave in China. Analysts believe that the situation will only worsen as it is quite difficult to access inflation risks now due to the geopolitical situation. Yet, there is no doubt that the consumer price index will continue to grow in the coming months. The situation in the UK labor market, where employers are forced to fight for every employee by offering higher wages, is also fueling inflation. The pressure on the pound sterling is also increasing for another reason – the Fed's aggressive policy. The FOMC is expected to hike the key rate by 0.75% at the May meeting. The US economy is strong now. Unlike the UK, the Fed may tighten monetary policy at a faster pace. The COT report for April 19 revealed that the number of long non-commercial positions rose to 36,811 from 35,514, while the number of short non-commercial positions jumped to 95,727 from 88,568. It led to an increase in the negative delta of the non-commercial net position to -58 268 from -53 054. The weekly closing price decreased to 1.2997 from 1.3022

Signals of technical indicators

Moving averages

GBP/USD is trading near 30- and 50-period moving averages. It indicates the possibility of a trend reversal.

Remark. The author is analyzing a period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.

Bollinger BandsIn case of a rise, the upper border at around 1.2550 will act as resistance. If there is a breakout of the lower border, 1.2460 will act as support.

Definitions of technical indicators

• Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart.
• Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is
• displayed as the green line.
• MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The
• MACD is calculated by subtracting the 26-period Exponential Moving Average(EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal line".
• Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average.
• Non-commercial traders - speculators such as retail traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.
• Non-commercial long positions represent the total long open position of non-commercial traders.
• Non-commercial short positions represent the total short open position of non-commercial traders.
• The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.