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GBP/USD: plan for the European session on June 17. COT reports. The pound rose after aggressive statements from the Bank

Relevance up to 01:00 2022-06-18 UTC–4

Yesterday, a huge number of market entry signals were formed. Let’s take a look at the 5-minute chart and see what happened. I paid attention to 1.2109 in my morning forecast and recommended making decisions from it. To my regret, this level was surpassed without a reverse test from the bottom up, which did not allow me to enter the market in short positions. After the bulls regained control over 1.2109, a reverse test from top to bottom at 1.2109 took place, which led to a false breakout and a buy signal, counting on the continuation of yesterday’s bullish scenario. As a result, before the Bank of England announced its decision, the pair went up more than 50 points. Then the bears tried to hold back the pressure of the bulls in the afternoon and sort of formed a false breakout and a sell signal from the level of 1.2241, but it led to consolidating losses. A breakthrough and reverse test from the top to the bottom of this range gave a signal to buy the pound. As a result, the pair went up about 100 points. Selling on the rebound from 1.2336 was not exactly a good trade, as the move down was only 15 points.

When to go long on GBP/USD:

Yesterday the Bank of England pulled out all the stops. As a result of the meeting, the central bank carried out the fifth consecutive increase in interest rates, counting on another attempt to curb the rapid growth of inflation. According to the voting results, the monetary policy committee voted 6-3 in favor of raising the bank rate by 25 basis points, to 1.25%, with three dissenting members of the committee voting in favor of raising it by 50 basis points, to 1.5%. In addition, the central bank said they are ready to pursue a more aggressive policy in the future if inflation does not show a decrease in the coming months. This was the main reason for the pound’s growth after the meeting. Obviously, today there may be a slight downward correction of the pair in the first half of the day, so forming a false breakout there at 1.2241, where the moving averages pass, will give a signal to open new long positions, counting on growth to the nearest resistance at 1.2325. An equally important task is to bring this level under control, which will increase the demand for the pound and lead to an improvement in market sentiment. A breakthrough and downward test of 1.2325 will give a signal to buy in anticipation of a new high this week around 1.2400. A breakthrough of this level, similar to yesterday, will lead to another entry point into long positions with the prospect of leaving at 1.2452, where I recommend taking profits. A more distant target will be the area of 1.2484.

If the GBP/USD falls and there are no bulls at 1.2241, and moving averages, playing on the bulls’ side, pass below this level, the pressure on the pair will increase. In this case, I advise you to open new long positions only on a false breakout from 1.2172. You can buy GBP/USD immediately on a rebound from 1.2102, or even lower – in the region of 1.2030 with the goal of correcting 30-35 points within the day.

When to go short on GBP/USD:

The bears are no longer in control of the market, but they will certainly try to achieve a larger sell-off of the pound to compensate for yesterday’s losses. But even if we significantly sink to 1.2172 and 1.2102, this did not bring victory to the bears – it is in the region of these ranges that the bulls will try to build the lower border of the new ascending channel. In order to build a downward correction, the bears need to return to the level of 1.2241, formed at the end of yesterday, as soon as possible. Consolidation below 1.2241 and a reverse test from below will provide an entry point into short positions with the prospect of a return to 1.2172. A more distant target will be the area of 1.2102, where I recommend taking profits.

In case the pound grows, the bears will most likely show themselves in the area of the nearest resistance at 1.2325, and a false breakout at this level will give a good entry point into short positions, counting on the resumption of the downward trend. If traders are not active at 1.2325, another upsurge may occur amid the removal of stop orders of speculative bears. In this case, I advise you to postpone short positions to 1.2400. But even there, I advise you to sell the pound only in case of a false breakout, as going beyond this range will increase the demand for GBP/USD. You can look at short positions immediately for a rebound from 1.2452, or even higher – from 1.2484, based on the pair’s rebound down by 30-35 points within the day.

COT report:

The Commitment of Traders (COT) report for June 7 logged a sharp increase in long positions and only a small growth in short ones. However, as I think you understand, at the moment the picture is completely different: the last three trading days have turned the market upside down. The pair’s succeeding direction, which is in the area of annual lows, depends on the Federal Reserve meeting and on the decisions taken at it. A more aggressive policy will push GBP/USD further down, as the UK economy, as the latest data showed, is gradually reducing the growth rate, which does not give confidence to investors. The Bank of England meetings are unlikely to help the pound in any way, since the central bank will not abandon the policy of raising rates. I very much doubt its further aggressive actions aimed at combating inflation by sacrificing the growth rate of the economy. Although BoE Governor Andrew Bailey continues to say that the central bank is not going to give up on raising interest rates yet, however, there are also no hints of a more aggressive approach to monetary policy.

The COT report indicates that long non-commercial positions increased by 3,830 to the level of 34,618, while short non-commercial positions increased by 535 to the level of 105,428. This led to a decrease in the negative value of the non-commercial net position from the level of -74,105 to the level of -70,810. The weekly closing price rose 1.2481 to 1.2511.

I recommend to read:

Indicator signals:

Moving averages

Trading is conducted above the 30 and 50-day moving averages, which indicates the bulls’ attempt to continue the growth.

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

In case of a decline, the lower border of the indicator around 1.2172 will act as support. In case of growth, the area of 1.2440 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 9Bollinger 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 market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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