17.05.202208:59 Forex Analysis & Reviews: GBP/USD: plan for the European session on May 17. COT reports. The pound is actively bought in anticipation of forming a bottom and a new trend

When to go long on GBP/USD:

Yesterday only one good signal was formed to enter the market. Let's take a look at the 5-minute chart and see what happened. In my morning forecast, I paid attention to the level of 1.2222 and advised you to make a decision on entering the market from it. The lack of statistics on the UK and the expected speech of Bank of England Governor Andrew Bailey in the afternoon caused the 1.2222 level to be tested, where in my morning forecast I advised you to open long positions there in anticipation of the recovery of the pair, which happened. As a result of forming a false breakout and a buy signal, the pair went up by more than 40 points, but we have not yet reached the planned resistance in the 1.2291 area. In his speech, Bailey reassured investors who were afraid of a pause in the interest rate hike cycle by the BoE, after which the pound continued to rise. However, it was not possible to wait for new signals to enter the market.

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 10 showed that long positions decreased while short positions had increased, which caused the negative delta to increase further. The presence of a number of problems in the economy and a rather difficult situation with inflation are forcing investors to get rid of the British pound, which is very seriously losing its appeal against the backdrop of demand for safe haven assets and more profitable instruments. The monetary policy of the Federal Reserve, aimed at tightening the cost of borrowing, will continue to support the US dollar, pulling the British pound lower and lower. The actions of the Bank of England to raise interest rates have not yet brought the desired result, and talk that, due to serious economic difficulties, the central bank may even suspend the normalization of monetary policy, scare investors even more. As I have repeatedly noted, future inflationary risks are now quite difficult to assess also because of the difficult geopolitical situation, but it is clear that the consumer price index will continue to rise in the coming months. The situation in the UK labor market, where employers are forced to fight for each employee, offering ever higher wages, is also pushing inflation higher and higher. The May 10 COT report indicated that long non-commercial positions decreased by -4,067 to 29,469, while short non-commercial positions rose by 1,718 to 109,067. This led to an increase in the negative value of the non-commercial net position from - 73,813 to -79,598. The weekly closing price fell from 1.2490 to 1.2313.

Pound bulls can take advantage of good data on the UK economy and continue the correction in order to break through the nearest resistance at 1.2356. If the pair declines after receiving disappointing data on the change in the number of applications for unemployment benefits and the unemployment rate in the UK, the bulls will have to defend the immediate support of 1.2311. Only a false breakout at this level can provide a signal for long positions that can keep the GBP/USD within the rising channel, as well as based on the breakdown and update of 1.2356. Consolidating above 1.2356 will strengthen the demand for the pound and lead to growth to the area of rather large resistance at 1.2396. There bulls will take a break before the release of important statistics on the US, expected this afternoon. A more distant target will be the area of 1.2445, where I recommend taking profits. However, we will only be able to get to this level if a number of bearish stop orders are removed after the release of the US retail sales report. In case the pound falls during the European session and the lack of activity at 1.2311, bulls do not need to panic. I advise you to postpone long positions until the next support at 1.2275, where the moving averages are passing, playing on the bulls' side. Forming a false breakout there will provide an entry point into long positions, counting on the continuation of the upward correction. You can buy GBP/USD immediately on a rebound from 1.2237, or even lower - in the area of 1.2201 with the goal of correcting 30-35 points within the day.

When to go short on EUR/USD:

The bears received a very serious rebuff and now it is necessary to open short positions against the formation of a new upward trend, and this is to be done very carefully - especially considering what annual lows we are at. The first task is to protect the 1.2356 range. Forming a false breakout at this level will provide an entry point to short positions with the goal of returning the bear market and the subsequent update of support at 1.2311. A breakdown and a reverse test from below 1.2311 will bring down the GBP/USD to the lows: 1.2275 and 1.2237. A more distant target will be the area of 1.2201, where I recommend taking profits. If the pair rises during the European session against the background of strong data on the UK labor market, as well as a positive change in the level of average earnings of the population, it is best to postpone short positions to the level of 1.2396. I also advise you to open short positions there only in case of a false breakout. You can sell GBP/USD immediately for a rebound from the high of 1.2445, counting on the pair's rebound down by 30-35 points within the day.

Indicator signals:

Moving averages

Trading is above the 30 and 50-day moving averages, which indicates an attempt by the bulls to build a 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

A breakthrough of the average border of the indicator in the area of 1.2311 will increase the pressure on the pair. If the pair grows, the upper border of the indicator around 1.2385 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.