GBP/USD 5M

The GBP/USD currency pair fell by 300 points on Thursday. Such volatility, such strength of movement happens once or twice a year. It is not surprising that traders observed it precisely in those days when the results of the meetings of the Bank of England and the Federal Reserve were summed up. Both banks raised their key rates and signaled their readiness to tighten monetary policy further. However, if the US dollar ended up logically appreciating, then why did the pound fall so much when the BoE also raised the rate? It's a mystery. Yes, BoE Governor Andrew Bailey's rhetoric was far from optimistic. But still, a fall of 300 points is too much. We will not be surprised if we see an equally strong movement in the opposite direction on Friday. In the meantime, we can state that the downward trend continues, and the pound, like the euro, has not managed to correct normally. The downward trend persists, as do questions about how long the euro will continue to fall. From our point of view, although most factors remain on the dollar's side, this currency has already grown enough to continue this process further.

There were several trading signals during the past day. Everything is for short positions. At first glance, it was just the Grail: on a 300-point drop, there were three sell signals. However, not everything is so simple. The first signal was formed when the pair overcame the critical line. However, it was not necessary to work it out, since it was at this time that the results of the BoE meeting were announced, so the movement could be absolutely anything and there was no need to take risks. The next two signals near the extreme level 1.2410 were formed when the price had already gone down 240 points. Therefore, it was dangerous to work them out: the fall in quotes could end at any moment. As a result, we believe that positions should not have been opened.

COT report:

The latest Commitment of Traders (COT) report on the British pound has witnessed a new increase in bearish sentiment among professional traders. During the week, the non-commercial group opened 3,600 long positions and 14,300 short positions. Thus, the net position of non-commercial traders decreased by another 11,000. Such changes are significant for the pound. The non-commercial group has already opened a total of 110,000 short positions and only 40,000 long positions. Thus, the difference between these numbers is almost threefold. This means that the mood among professional traders is now "pronounced bearish" and this is another factor that speaks in favor of the continuation of the fall of the British currency. Note that in the pound's case, the data from the COT reports accurately reflects what is happening in the market. Traders are bearish and the pound is falling against the US dollar. We do not see any reason to assume the end of the downward trend. COT reports, foundation, geopolitics, macroeconomics, technique, all speak in favor of the fall of the pound and the rise of the dollar. Of course, the fall of the pound/dollar pair cannot continue forever, there must be at least upward corrections, but so far, based on COT reports, we cannot assume when the downward trend will end.

We recommend to familiarize yourself with:

Overview of the EUR/USD pair. May 6. Summing up the results of the Fed meeting and analyzing the market reaction.

Overview of the GBP/USD pair. May 6. Andrew Bailey: Inflation is now a big headache for the whole world.

Forecast and trading signals for GBP/USD on May 6. Detailed analysis of the movement of the pair and trading transactions.

GBP/USD 1H

It is clearly seen on the hourly timeframe that the pound has not managed to correct normally after a strong fall. At the moment, it is obvious that the downward trend continues, and the pound has broken through its previous local lows and shows full readiness for a further fall. However, on Friday we allow a reverse movement upwards, as the pound, from our point of view, has fallen too much lately and, in particular, yesterday. For May 6, we highlight the following important levels: 1.2251, 1.2410, 1.2601, 1.2674. Senkou Span B (1.2749) and Kijun-sen (1.2477) lines can also be sources of signals. Signals can be "rebounds" and "breakthrough" of these levels and lines. The Stop Loss level is recommended to be set to breakeven when the price passes in the right direction by 20 points. Ichimoku indicator lines can move during the day, which should be taken into account when determining trading signals. The chart also contains support and resistance levels that can be used to take profits on trades. Only a report on business activity in the construction sector is scheduled in the UK on Friday, which is unlikely to be of any serious interest to anyone. But much more important reports will be published in America, which can provoke a new strong movement of the pair. In particular, this is the Nonfarm report.

Explanations for the chart:

Support and Resistance Levels are the levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.

Kijun-sen and Senkou Span B lines are lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour one.

Support and resistance areas are areas from which the price has repeatedly rebounded off.

Yellow lines are 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.