5M chart of GBP/USD
GBP/USD also extended its downward trajectory on Monday, which started on Friday. The US released a strong NonFarm Payrolls report on Friday, which boosted dollar demand. In addition to that, the pound's decline and the dollar's growth are logical at the moment. Most likely, the pair would have continued to fall throughout the day if not for the US ISM services data. It dropped to 50.3 points in May, which greatly alarmed traders, as the index could potentially fall below the "waterline" in the next month. However, at the end of the day, the pair remained below the Kijun-sen line, indicating that the downward trajectory may persist this week. On the other hand, the macroeconomic backdrop will be practically nonexistent, which means we may experience weak, flat movements.
There were numerous trading signals yesterday as the pair was trading in the area of the Ichimoku indicator lines. First, a sell signal was formed near the critical line, after which the pair dropped by around 50 pips. Essentially, traders could manually close their short positions and take profits before the release of the ISM index. After the release of the ISM index, all trading signals formed within a 35-pip range between the level of 1.2445 and the Senkou Span B line. It was not advisable to trade using these signals.
COT report:
According to the latest report, non-commercial traders opened 1,100 long positions and closed 500 short ones. The net position increased by 600 and remained bullish. Over the past 9-10 months, the net position has been on the rise despite bearish sentiment. The pound is bullish against the greenback in the medium term, but there have been hardly any reasons for that. We assume that a prolonged bear run has begun. COT reports suggest a bullish continuation. However, we can hardly explain why the uptrend should go on.
Both major pairs are in correlation now. At the same time, the positive net position on EUR/USD shows the end of the uptrend. Meanwhile, the net position on GBP/USD is neutral. The pound has gained about 2,300 pips. Therefore, a bearish correction is now needed. Otherwise, a bullish continuation would make no sense even despite the lack of support from fundamental factors. Overall, non-commercial traders hold 57,000 sell positions and 70,300 long ones. We do not see the pair extending growth in the long term.
1H chart of GBP/USD
In the 1-hour time frame, the pair started an upward movement and just as quickly ended it. The market insists on buying the pound, which remains significantly overbought and unjustifiably high. However, take note that the market has the right to trade regardless of the fundamental and macroeconomic backdrop. For now, we will consider the strong correction that we've seen last week and expect a revival of the downward movement.
On June 6, trading levels are seen at 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2589, 1.2666, 1.2762. The Senkou Span B line (1.2395) and the Kijun-sen line (1.2445) lines may also generate signals when the price either breaks or bounces off them. A Stop Loss should be placed at the breakeven point when the price goes 20 pips in the right direction. Ichimoku indicator lines can move intraday, which should be taken into account when determining trading signals. There are also support and resistance which can be used for locking in profits.
On Tuesday, the UK will release its Construction PMI, which could potentially influence market sentiment, while the US has no significant data scheduled. Overall, volatility is unlikely to be high. The pound's growth may confirm the market's intention to resume the global uptrend.
Indicators on charts:
Resistance/support - thick red lines, near which the trend may stop. They do not make trading signals.
The Kijun-sen and Senkou Span B lines are the Ichimoku indicator lines moved to the hourly timeframe from the 4-hour timeframe. They are also strong lines.
Extreme levels are thin red lines, from which the price used to bounce earlier. They can produce trading signals.
Yellow lines are trend lines, trend channels, and other technical patterns.
Indicator 1 on the COT chart is the size of the net position of each trader category.
Indicator 2 on the COT chart is the size of the net position for the Non-commercial group of traders.
