short position

The main news of the weekend was the agreement on the US debt limit, which may serve as a basis for increased risk demand at the beginning of the week. The House of Representatives is expected to vote on Wednesday.   It was reported that the debt ceiling will be approved until the 2024 presidential elections. Non-defense spending will remain at current levels in 2024 and will increase by only 1% in 2025. This is a compromise between Republican demands for sharp spending cuts and Democratic intentions to raise taxes.   The aggregate short position in the US dollar decreased by 3.3 billion to -12.1 billion during the reporting week. Overall, sentiment towards the dollar remains negative, but the trend may have changed.     It is also worth noting a decrease in the long position on gold by 4 billion to -31.7 billion, which is also a factor in favor of the US dollar. The core PCE deflator increased by 0.4% MoM, which is slightly higher than the consensus forecast of 0.3%.   Despite the faster-than-expected price growth, real consumer spending rose by 0.5% MoM, surpassing the expected 0.3%. The rise in the PCE deflator indicates that the fight against inflation is still far from over. In a 3-month annualized expression, the core PCE deflator stands at 4.3%, the same as in April 2022. The combination of higher spending and faster price growth is expected to lead to the Federal Reserve raising rates in June. Cleveland Fed President Loretta Mester, commenting on the released data, stated that "the data that came out this morning suggests that we still have work to do."   The CME futures market estimates a 63% probability of a Fed rate hike in June, compared to 18% the previous week, making the strengthening of the dollar in the changed conditions more than likely. Monday is a banking holiday in the US, so by the end of the day, volatility will decrease, and we do not expect strong movements. EUR/USD The ECB maintains a firm stance on continuing rate hikes as part of its fight against inflation.   On June 1, preliminary inflation data for the Eurozone will be published, and the forecast suggests a slowdown in core inflation from 5.6% to 5.5%. If the data release aligns with expectations, it will lower the ECB rate forecasts and put additional pressure on the euro.   The net long position on the euro decreased by 2.013 billion to 23.389 billion during the reporting week, marking the first significant reduction in the past 10 weeks. The calculated price is moving further south, indicating a high probability of further euro weakening.     EUR/USD has predictably declined to 1.0730, where support held, but we expect another attempt to test its strength, which will likely be more successful. Within a short-term correction, the euro may rise to resistance at 1.0735 or 1.0830, but the upward movement is likely to be short-lived and followed by another downward wave. Our long-term target is seen in the support zone of 1.0480/0520.   GBP/USD The decline in inflation in the UK is once again being called into question. The core Consumer Price Index rose from 6.2% YoY to 6.8% in April, with yields sharply increasing. The retail sales report for April, published on Friday, showed that the slowdown in consumer demand remains more of an aim than a reality. Retail sales excluding fuel increased by 0.8% MoM, significantly higher than the forecast of 0.3%.   If it weren't for the sharp decline in energy demand, both the monthly and annual retail growth would have been noticeably higher than expected. Monday is a banking holiday in the UK, and there are no macroeconomic data expected this week that could influence Bank of England rate forecasts.   Therefore, the pound will be traded more in consideration of global rather than domestic factors. We do not expect high volatility or significant movements. The net long position on the pound slightly decreased by 84 million to 899 million during the reporting week. The bullish bias is small, and the positioning is more neutral than bullish. The calculated price is below the long-term average and is downward-oriented.     The pound has predictably moved towards the support zone at 1.2340/50, but the decline has slowed down at this level. We expect the decline to continue, with the nearest targets being the technical levels at 1.2240 and 1.2134. There is currently insufficient basis for a resumption of growth.  

On Friday, the GBP/USD pair fell after strong US data. The first half of the day saw a similar flat movement as the euro, while the second half witnessed a decline. However, the GBP/USD pair maintains an uptrend, with the price still above the Ichimoku indicator lines. Therefore, it could trade higher this week, despite the complete absence of fundamental and macroeconomic reasons for such a move. We still believe that both the pound and the euro should be falling. It is possible that they corrected last week so that it can continue moving downward.       The trading signals for the pound were almost identical to those for the euro. During the European trading session, the price rebounded from the level of 1.2520 but failed to move in the right direction even by 20 pips. It was advisable to close the long position before the release of US data. Later, two sell signals formed near the same level, which traders could use to open a short position. Long positions were not recommended at that time as the reports clearly favored the dollar. Subsequently, the price dropped to the level of 1.2445, where the shorts should have been closed. The profit from them amounted to around 60 pips.     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.     In the 1-hour time frame, the pair has started an upward movement, and even after Friday's decline, it remains above the Ichimoku indicator lines. The pound doesn't exactly have grounds to buy the pound, which remains heavily overbought. However, take note that the market has the right to trade regardless of the fundamental and macroeconomic backdrop.   For now, let's consider that we have seen a strong correction last week and expect a revival of the downward movement. On June 5, 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 (1.2408) and the Kijun-sen line (1.2434) 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.   Today, both the UK and the US will release their respective Services PMIs for May. The UK data can influence traders' sentiment, as well as the US ISM data. Of course, it would be nice for the values of these data to deviate from the forecast, and the stronger the deviation, the stronger the market reaction may be.   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.  

EUR/CHF The Swiss franc might start looking more bullish if the SNB keeps up the hawkish rhetoric. SNB President Jordan is suggesting monetary policy is not tight enough.  Many traders, like ANZ are eying strategies that short EUR/CHF on any spike towards the 0.99 level.   Potential trigger: Friday’s German industrial production and if economic gloom becomes the dominant theme for the eurozone.  

Analyzing Monday's trades: GBP/USD on 30M chart     The GBP/USD pair tried to extend its upward movement on Monday, but this was in the absence of influential economic releases so it failed. In addition to that, the US reports from Friday were not weak enough for the dollar to fall further on Monday. Sterling does not have any reason to rise, and the USD does not have any reason to fall either. If it starts a corrective movement, it should be weak and slow. If the pound surges, it may indicate the resumption of the global uptrend, which, from our perspective, is completely illogical. Therefore, we are expecting a correction, followed by a decline. This week, there will be very few important events. The only noteworthy ones are the UK's GDP report for the second quarter and the US inflation report.   GBP/USD on 5M chart   On Monday, several trading signals were formed on the 5-minute chart. The break below the level of 1.2748 occurred overnight, but traders could have opened a short position once the European session started, as the price had not moved far from the formation point by that time. The pound fell by about 20 pips, so the Stop Loss should have been set to breakeven. The second buy signal was formed at the beginning of the US session, around the same level. In this case, the pair moved 25 pips in the right direction. That's what beginners could have gained on Monday. It was a low-volatility day for the pound. Trading tips on Tuesday: On the 30-minute chart, the GBP/USD pair broke the short-term downtrend. Now, the pound may correct higher, but we shouldn't expect a strong uptrend. We expect the pound to fall, as we still believe it is overbought and unreasonably expensive. The key levels on the 5M chart are 1.2538, 1.2597-1.2605, 1.2653, 1.2688, 1.2748, 1.2791-1.2801, 1.2848-1.2860, 1.2913, 1.2981-1.2993, 1.3043. Once the price moves 20 pips in the right direction after opening a trade, you can set the stop-loss at breakeven. On Monday, there are no important events or reports lined up in the US and the UK, so we should brace ourselves for another low-volatility day with no trends. The pair may continue its slow upward movement within the corrective phase.     Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal.   2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored.   3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading.   4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually.   5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel.   6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.     How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.