Black Pipper

Forex Dreamers

Plan for the European session on May 7. Commitment of Traders COT reports (analysis of yesterday’s deals). Bank of England decision

To open long positions on GBP / USD you need:

Several excellent signals to enter the market were formed yesterday. Let’s take a look at the 5-minute chart and figure it out. A strong PMI report for the UK services sector helped the British pound recover its position against the US dollar and get close to the resistance at 1.3921. A false breakout on it formed a signal to open short positions, which were fully realized after the decision of the Bank of England. The downward movement was about 40 points. Let me remind you that the British regulator left the interest rate and economic stimulus unchanged at 0.10%. The bank also kept its corporate bond purchases at £ 20bn and government bonds at £ 875bn. Then we could observe an unsuccessful attempt to grow the pound above resistance 1.3921, a return under which and its test from the reverse side led to the formation of a new entry point for short positions. As a result, we could once again observe the movement to the support area of ​​1.3878, which brought another 40 points of profit. And already in the middle of the American session, after the bulls regained the level of 1.3878, a signal to buy the pound was formed, which led to a slight upward correction of the pair today in the Asian session.

I analyzed all the deals in more detail in my video forecast.

Technically, little has changed since yesterday. It is still important for buyers to achieve a breakout of the 1.3921 range in the morning. Good data on the UK construction sector, the speech of the Deputy Governor of the Bank of England for Monetary Policy Ben Broadbent and consolidation above the level of 1.3921 with a test from top to bottom – all this forms a signal to open new long positions, counting on the continuation of the upward April trend. The next target of the bulls will be growth to the rather important resistance 1.3970, where I recommend taking profits. The further target will be the maximum of 1.4016, the renewal of which will resume the bullish trend, allowing the pound to move beyond the wide sideways channel, in which it has been since the end of April. In the event of a decline in GBP / USD, bulls will have to defend support at 1.3878. You can act from there only after the formation of a false breakout. In the absence of GBP / USD activity at the 1.3878 low, I recommend postponing long positions immediately to a rebound from the local support in the 1.3839 area, or even lower – until the 1.3799 low test, from where you can expect an upward correction of 25-30 points within the day.

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To open short positions on GBP / USD you need:

At the moment, sellers need to think about how to defend the resistance at 1.3921, which they successfully did all day yesterday. Weak fundamental reports on the UK may help this scenario come true. But only the formation of a false breakout in the 1.3921 area generates a signal to open short positions in the expectation of a decline to support 1.3878, in the area of ​​which the pair stopped its decline yesterday. If the activity of sellers is not noted at the level of 1.3921, and good data on the US labor market may return the demand for risky assets, I recommend to postpone selling until the upper border of the side channel 1.3970 is updated, from where you can open short positions immediately on a rebound with the aim of a downward correction in 20- 25 points within the day. The next major resistance is seen at 1.4016. An equally important task for the bears will be to break through the support at 1.3878, which they did not manage to break below yesterday. Only a breakout and consolidation below this level with a reverse test of it from the bottom up will lead to the formation of a good entry point to short positions in the expectation of a return of the pair to the 1.3839 area, where I recommend taking profits. The further target will be the level 1.3799.

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I recommend that you familiarize yourself with:

EURUSD: World leaders ready to unite in the fight against Covid. What will be the market reaction to the Non-Farm Employment report

EUR / USD: plan for the European session on May 7. Commitment of Traders COT reports (analysis of yesterday’s deals). Buyers keep picking up levels. The next target is 1.2091

Let me remind you that the COT reports (Commitment of Traders) for April 27 recorded a reduction in both long and short positions, while the total non-commercial net position increased. How it happened – let’s figure it out. Last week, we did not see any important fundamental statistics for the UK, so all the attention was on the European Parliament vote on Brexit, the results of which supported the pound. Also, the speeches of the British Prime Minister and the possible earlier lifting of all quarantine restrictions in Britain allowed the buyers of the pound to adhere to their scenario to strengthen the pair. All this will continue to contribute to growth in the medium term, so I recommend betting on further strengthening against the US dollar. Any good downward correction of the pair is another reason to think about buying the pound, since the prospect of a recovery in the UK economy in the summer gives rise to a lot of optimism. The COT report indicated that long non-commercial positions declined from 61,053 to 59,917. At the same time, short non-commercials plummeted from 35,875 to 30,699, causing the non-commercial net position to rise to 29,218 against 25,178 a week earlier. Closing short positions once again points to the fact that the upside potential of the pound is enormous. Last week’s closing price also dropped slightly to 1.38947 against 1.39915.

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Indicator signals:

Moving averages

Trading is carried out in the area of ​​30 and 50 moving averages, which indicates the sideways nature of the market and the lack of certainty with the further direction of the pair.

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 breakout of the upper border of the indicator in the area of ​​1.3915 will lead to a new wave of growth of the pound. A break of the lower border of the indicator in the area of ​​1.3875 will increase the pressure on the pound

Description of indicators

  • Moving average (moving average, determines the current trend by smoothing volatility and noise). Period 50. Marked in yellow on the chart.
  • Moving average (moving average, determines the current trend by smoothing volatility and noise). Period 30. Marked in green on the chart.
  • Indicator MACD (Moving Average Convergence / Divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
  • Bollinger Bands Period 20
  • Non-commercial traders are speculators such as individual traders, hedge funds and large institutions who 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.
  • Non-commercial short positions represent the total short open position of non-commercial traders.
  • The total non-commercial net position is the difference between short and long positions of non-commercial traders.

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