The GBP / USD currency pair on Thursday, May 6, began to trade not just in the “swing” mode, but in the “storm” mode or in the “high-volatility swing” mode. Fortunately, traders knew what to expect from yesterday, as an important event in the form of summing up the results of the meeting of the Bank of England was planned for Thursday in advance. Yesterday we assumed that the Bank of England will not make any important decisions, and representatives of the Bank of England will not provide the markets with any important information. And so it happened in practice. There was nothing important in the cover letter. The Bank of England will continue to stimulate the economy until inflation reaches a stable 2% in the medium term and the economy recovers from the “coronavirus crisis.” Unlike the United States, Britain will have to wait a long time for these results. In addition to the Bank of England meeting, in the UK the service business activity index was published in the morning (the number “1” in the illustration), which did not cause any market reaction. Andrew Bailey’s talk was on some calendars, but not on European ones. At 15-30 UTC, the United States published a report on applications for unemployment benefits, which supported the American currency in the form of +20 points, but did not have a serious impact on the course of trading. So, what can you say about today? In the morning, not a single signal was formed and in general there was an open flat. A little closer to noon, trading should not have been given for any signals, since no one knew how the market would react to the results of the Bank of England meeting and whether there would be any surprises from the BA itself. It was also not recommended to trade at the American trading session, since the summing up of the results of the BA meeting began literally an hour before the opening of “America”. As a result, the pound / dollar pair “danced” all day, ignoring all important lines and levels, which is not surprising, since yesterday the markets traded exclusively on the “foundation”, which everyone interpreted in their own way. Thus, no trades should have been opened yesterday.
On the hourly timeframe, the pound / dollar pair has been jumping from side to side throughout the past day. One could not even dream of any calm movement. The previous couple of days the pair was trading in a flat, yesterday – in a “high volatility swing”. In general, it was impossible to bargain this movement. The price bounced once again from the resistance level of 1.3927, and an extremum level of 1.3931 was formed, which may help in future trades. Also, the price bounced off the Kijun-sen line twice, but only after it was rebuilt. In general, the “swing” mode remains for the pound, and practically on all timeframes. We still believe that this week the pair can calmly resume its movement down 200 points within the swing from the 4-hour timeframe. Thus, we continue to pay attention to the most important levels and lines: 1.3835, 1.3886, 1.3931 and 1.3975. Senkou Span B and Kijun-sen lines are not strong now, as there is a flat on the 4-hour timeframe. It is recommended to set the Stop Loss level at breakeven when the price passes 20 points in the right direction. On Friday, May 7, the UK construction business report (reaction maximum 20 points) is due, and Bank of England representatives Ben Broadbent and Andy Haldane will speak. More important events are scheduled for the afternoon. The United States will publish the most important reports on NonFarm Payrolls, unemployment rate and average wages. I don’t want to remember how the markets reacted to the latest report on Nonpharm (no way, – author’s note). I would like to hope that this time everything will be different. At the same time, the reaction can be strong, so trading at this time should be as careful as possible or not trading at all.
We also recommend that you familiarize yourself with the forecast and trading signals for the EUR / USD pair.
Recall that during the last reporting week (April 20 – 26), the GBP / USD pair fell by 90 points. The last few COT reports have shown that the mood among professional players is again becoming more “bullish”, but in general they themselves do not know what to do with the pound sterling in the past year. Look at the first indicator in the illustration below the chart. The green line is the net position of the “Non-commercial” group of traders. It constantly changes the direction of movement, intersects with the red line (net position of the “Commercial” group). In general, it is now impossible to predict the further movement of the pair based on COT reports. From October to March, the pound sterling rose in value against the dollar, although the green and red lines at that time showed no trend. During the reporting week, major players closed 1.1 thousand buy contracts and got rid of 5 thousand sell contracts. Thus, their net position increased by 3.9 thousand contracts, and the mood again became more “bullish”. In general, it also remains “bullish”, since the total number of buy contracts from professional players exceeds the total number of sell contracts by 2 times. Thus, of course, we can expect further growth in quotations of the British pound, but we still believe that the swing will continue at this time. Too many conflicting factors are at the disposal of the markets. Constant changes in the direction of movement of the green line indicate that large players in the long term do not themselves know what to do with the pound sterling.
Explanations for illustrations:
Price levels of support and resistance (resistance / support) – levels that are targets when opening purchases or sales. You can place Take Profit levels near them.
Kijun-sen and Senkou Span B lines – the lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour timeframe.
Support and resistance areas are areas from which the price has repeatedly bounced off.
Yellow lines – trend lines, trend channels and any other technical patterns.
Indicator 1 on the COT charts is the size of the net position of each category of traders.
Indicator 2 on the COT charts is the size of the net position for the “Non-commercial” group.