GBP/USD: plan for the European session on April 12. COT reports. Pound bulls grabbing another weekly low again

To open long positions on GBP/USD, you need: Yesterday, quite a lot of profitable signals were formed for the pound to enter the market in the first half of the day, while the American session was quite crumpled. Let's look at the 5-minute chart and figure out what happened and how to act. In my morning forecast, I paid attention to the levels of 1.3019 and 1.3050 and recommended them to make decisions on entering the market. A false breakout at 1.3019 at the beginning of European trading after weak statistics on GDP and industrial production in the UK led to a signal to open short positions. As a result, the pound dropped by 30 points, but we fell just a little short of 1.2984. A return to 1.3019 and a reverse test from top to bottom – all this was a buy signal, which returned the pound to 1.3050, allowing it to pick up about 30 more points. 

A false breakout at 1.3050 led to a sell signal.As a result, the pair failed by more than 30 points. In the second half of the day, it was not possible to achieve the formation of normal entry points into the market, since trading was mainly conducted around the 1.3025 level. Before analyzing the technical picture of the pound, let's look at what happened in the futures market. The Commitment of Traders (COT) report for April 5 logged an increase in both short and long positions. However, there were more of the first ones, which once again led to an increase in the negative delta. Fears related to the state of the UK economy and the risks of high inflation, which is sure to further exacerbate the ongoing crisis of British households, have been confirmed. 

Recent GDP data indicated a very sharp slowdown in economic growth. Experts note that the situation will only worsen, as inflation risks are now quite difficult to assess, but it is clear for sure that the consumer price index will continue to grow in the coming months. At the same time, the soft position of the governor of the Bank of England will only push prices up. The only thing the bulls can count on now is the positive results of the negotiations between the representatives of Russia and Ukraine and progress towards a settlement of the conflict. Do not forget about the aggressive policy of the Federal Reserve System, which is becoming more hawkish every day. In the US, there are no such problems with the economy as in the UK, so there the Fed can raise rates more actively, which it is going to do during the May meeting – another signal towards selling the pound against the US dollar. 

The COT report for April 5 indicated that long non-profit positions rose from the level of 30,624 to the level of 35,873, while short non-profit positions jumped from the level of 70,694 to the level of 77,631. This led to an increase in the negative value of the non-commercial net position from -40 070 to -41 758. The weekly closing price rose to 1.3112 against 1.3099.

Yesterday's data on the British economy did not make traders very happy, so it will be quite difficult to count on the real growth of the pound in the current conditions, even despite the good protection of yesterday's monthly lows. The data on the UK labor market, which are expected to be at a fairly good level, may allow the bulls to break above 1.3034, but if the reports disappoint, they will have to fight an active battle for the 1.2990 area again – it is impossible to let the pound go lower, the abyss is lower. 

Only strong reports on changes in the number of applications for unemployment benefits, the unemployment rate and, in particular, changes in the level of average earnings in the UK will lead to an increase in the pound. If the pair falls after the data, only a false breakout at 1.2990 will give a buy signal that can return GBP/USD to the resistance area of 1.3034. However, we all understand the conditions in which the pound is currently located and that the bears will act more actively with each significant increase. 

The reason for the build-up of short positions is the governor of the Bank of England, Andrew Bailey, with his soft policy, and the chairman of the Federal Reserve, Jerome Powell, with his hawkish approach to interest rates. A breakthrough and a test of 1.3034 from top to bottom will form an additional entry point into long positions, which will strengthen the demand for the pound and lead to an increase in the area of a high of 1.3071. A more distant target will be the 1.3104 area, where I recommend taking profits. However, we will be able to reach this level only with very positive news about the reduction of the conflict between Russia and Ukraine. 

Under the scenario of the pound falling during the European session and the lack of activity at 1.2990, it is best to postpone long positions until the next low of 1.2950. Only the formation of a false breakout at this level can stop the bearish trend and give an entry point in the expectation of a short-term rebound of the pair up. You can buy GBP/USD immediately for a rebound from 1.2911, or even lower – around 1.2856 with the aim of correcting 30-35 points within the day.

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