5M chart of GBP/USD

GBP/USD also traded in a tight range on Monday, making it difficult to open positions even when the pair bounces from the channel's limits. However, more on that later. There were no important reports in either the UK or the US. We could highlight a new series of speeches by Federal Reserve representatives, but since volatility was only 60 pips, the market did not show much interest in them. And let's say traders did react to a specific speech, how much movement did it generate? 20 pips? In any case, the quality of trading signals did not improve.

Formally, the pair settled below the range of 1.2429-1.2468 twice. However, in both cases, if a short position was opened and the signal turned out to be false, the trade would have to be closed when the pair was above the critical line. Therefore, the potential loss was much higher than the potential profit (especially since volatility was low). Therefore, the best decision was not to open any positions, especially since the pair was trading within a sideways channel.

The pound is still in a downtrend and is likely to continue given all the factors at play. However, in the past few days, it has not shown interest in building a new downward movement. Nevertheless, this could simply be a pause that the market is taking in the absence of important events. Just because the pair is expected to decline doesn't mean it will do so every day.

COT report:

According to the latest report, non-commercial traders opened 5,800 long positions and closed 2,200 short ones. The net positions grew by 8,000 and remained bullish. Over the past 9 months, the net position has been on the rise despite bearish sentiment. The pound is bullish against the greenback in the medium term, and fundamentals hardly explain that. We do not rule out a possibility of a fall in the near term. In fact, it may have already begun.

Both major pairs are in correlation now. At the same time, the positive net position on EUR/USD indicates an impending reversal. Meanwhile, the neutral net position on GBP/USD illustrates a bullish continuation. The pound has gained about 2,300 pips. Therefore, a bearish correction is now needed. Overall, non-commercial traders hold 64,800 sell positions and 77,400 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 has breached the ascending trendline. The bearish movement persists. The price is below the Ichimoku indicator, which allows us to be hopeful about the current trend. I should mention that we still believe that the pair should extend its downward movement, but since the market is taking a "break", we will likely see a flat with low volatility.

On May 23, trading levels are seen at 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2589, 1.2666. The Senkou Span B (1.2549) and Kijun-sen (1.2448) 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, PMIs in the manufacturing and services sectors will be published in the UK and the US. You should pay attention to the report on the manufacturing sector, but take note that PMIs are not that important for the market. No other significant fundamental or macroeconomic events are scheduled for today.

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.