FX.co ★ Trading Recommendations and Deal Analysis for GBP/USD on June 1. The Pound Is in No Hurry to Fall or Rise

Analysis of GBP/USD 5M

The GBP/USD currency pair continued its upward movement on Friday, which may be related to rising optimism about the conflict in the Middle East. Donald Trump reiterated several times last week that the parties are close to an agreement, but at the same time, Iran and the United States violated the ceasefire multiple times. Trump threatened Oman with military action if it concludes an agreement on the control of the Strait of Hormuz, and Iran indicated once again that it has no agreements with Washington and that the nuclear issue is not even on the negotiation agenda. Thus, there is much information, it is contradictory, and each trader decides for themselves what to believe. Last week, the British pound rose; this week, it could just as easily fall. The macroeconomic and fundamental background continues to be ignored, with few exceptions.

From a technical perspective, the upward trend on the hourly timeframe has completed, so this week we may see the pair decline. The price has breached the trend line. Without geopolitical support, it will be challenging for the British currency to demonstrate growth in the near term, and the market continues to largely ignore macroeconomic and fundamental factors. In the near future, the dynamics of the British pound will depend not on technical analysis but on geopolitics. Technical analysis merely reflects the ongoing, constantly changing market sentiment.

On the 5-minute timeframe, three trading signals were generated on Friday. First, the pair broke through the Kijun-sen line and moved down about 15-20 pips. Thus, the trade closed at a Stop Loss at break-even. Next, the price breached the critical line in the opposite direction and hit the nearest target – the 1.3465-1.3480 area – in about 15 minutes. The distance from the entry point to the target area did not exceed 20 pips, so we wouldn't recommend opening such positions. The last third signal was generated too late...

COT Report

COT reports for the British pound show that commercial traders' sentiment has been changing steadily in recent years. The red and blue lines, representing the net positions of commercial and non-commercial traders, frequently cross each other and are often close to the zero mark. Currently, the lines are diverging, with non-commercial traders dominating and holding... short positions. Given the events in the Middle East, it is not surprising that demand for risk currencies is falling, while demand for the dollar is increasing.

In the long term, the dollar continues to decline due to Trump's policies, which are clearly visible on the weekly timeframe (illustration above). The trade war will continue in one form or another for a long time, and Trump's policy is aimed directly and indirectly at weakening the American currency. However, geopolitical factors are currently at the forefront and have recently provided strong support for the dollar.

Since the conflict in the Middle East cannot be considered resolved, the US dollar may still show growth in the future. According to the latest COT report (dated May 26), the "Non-commercial" group closed 10,100 BUY contracts and 13,000 SELL contracts. Thus, the net position of non-commercial traders grew by 3,100 contracts over the week.

Analysis of GBP/USD 1H

On the hourly timeframe, the GBP/USD pair ended its upward trend due to another escalation around the Strait of Hormuz. The macroeconomic and fundamental background still has little impact on the pair's movements. We do not believe that without a real escalation of the conflict in the Middle East, the dollar can show strong growth. The American currency can only hope for a failure in negotiations between Iran and the US.

For June 1, we highlight the following important levels: 1.3096-1.3115, 1.3179-1.3187, 1.3369-1.3377, 1.3465-1.3480, 1.3588, 1.3671-1.3681, 1.3751-1.3763. The Senkou Span B line (1.3477) and Kijun-sen line (1.3437) may also be sources of signals. It is recommended to set a Stop Loss to break-even when the price moves in the correct direction by 20 pips. The lines of the Ichimoku indicator may shift during the day, which should be taken into account when determining trading signals.

On Monday, one important report is scheduled for both the UK and the US – the ISM manufacturing index. We remind you that ISM indices are released in a single estimate and are more important than the S&P.

Trading Recommendations:

Today, traders can open short positions with a target of 1.3369-1.3377 if the pair bounces off the 1.3465-1.3480 area. Long positions will become relevant after breaching the 1.3465-1.3480 area with a target of 1.3588.

Explanations for the Illustrations:

Price levels of support and resistance – thick red lines, around which movement may end. They are not sources of trading signals.

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

Extreme levels – thin red lines, from which the price previously bounced. They are sources of trading signals.

Yellow lines – trend lines, trending channels, and any other technical patterns.

Indicator 1 on COT charts – the size of the net position of each category of traders.