To open long positions on GBP/USD, you need:
In the first half of the day, nothing interesting happened for the British pound. Due to the lack of important fundamental statistics, the pair did not reach any indicated levels. Thus, no input signals were formed. Several attempts to increase the GBP/USD ended in the resistance area of 1.3894, and the level I indicated was in the area of 1.3896. Low volatility suggests a wait-and-see position of traders before an important meeting of the Federal Reserve System on monetary policy. From a technical point of view, nothing has changed either.
Everything will depend on the results of the Federal Reserve meeting. If Jerome Powell hints at reducing the asset purchase program in the near future, then the pressure on the pound will return. If everything remains as it is: both the attitude to inflation and the attitude to the pace of economic recovery, the demand for the British pound may return, and we will see new growth of the pair in the second half of the day. In the meantime, buyers' focus is on the resistance of 1.3896, going beyond which will open the way to new local highs. A breakout and consolidation at this level with its reverse test from top to bottom will push the pound to buy and grow in the area of 1.3937 and 1.3978. A further target will be the resistance of 1.4019, where I recommend fixing the profits. In the event of a decline in the pair during the American session, the bulls' attention will move to the support of 1.3854, below which the moving averages are playing on the side of the bulls. The formation of a false breakout will be a signal to open new long positions to continue the upward trend. In the absence of active actions on buyers in the area of 1.3854, it is best to postpone long positions until the minimum of 1.3814 is updated. I recommend buying GBP/USD immediately for a rebound only from the minimum of 1.3774 with the aim of an upward correction of 25-30 points within the day.
To open short positions on GBP/USD, you need:
The task of the bears remains to protect the resistance of 1.3896, which is the maximum of this month. The formation of a false breakout will certainly return the temporary pressure on the pound, which will form the first signal to open short positions, counting on the pair's decline to the support area of 1.3854. The breakdown of this level will certainly depend on the outcome of the Federal Reserve meeting, as other important US data are unlikely to provide significant support to the dollar during the US session. A report on the balance of foreign trade in goods can briefly revive the market. A break of 1.3854 and a test from the bottom up will hit the stop orders of the bulls, which will push the pound to the next minimum of 1.3814, where I recommend fixing the profits. The area of 1.3774 remains a longer-range target. In the absence of active sellers' actions in the area of 1.3896, I recommend postponing sales until the next major resistance of 1.3937 or selling GBP/USD immediately for a rebound from 1.3978, counting on a downward correction of 25-30 points within the day.
The COT reports (Commitment of Traders) for July 20 recorded a slight reduction in long positions and good growth in short ones. Despite the large drop in the pound, as we can see on the chart, the downward movement was quickly played out at the end of last week. However, this report does not take this into account. Thus, there is a feeling that the pound was completely under the control of the bears, but this is not the case. The panic after the lifting of all quarantine restrictions in the UK and the full opening of the economy occurred when a sharp increase in infections with a new strain of coronavirus began in England, and politicians arranged a dispute with each other about how to respond to it. But then, by the middle of the week, the situation stabilized, and the pound managed to recover all its losses against the US dollar. Traders still expect that the Bank of England representatives will soon begin to talk more about plans to reduce the bond purchase program. I have repeatedly drawn attention that traders pay special attention to every significant drop in the GBP/USD and show interest in it because the central bank will start talking about curtailing measures to support the economy sooner or later. And it will have a positive impact on the British pound and lead to its growth. But while there has not been a serious exit beyond the target level of inflation in the UK, it is unlikely that the Bank of England will rush to change its policy. Despite this, the optimal scenario is to buy the pound with each good decline in pair with the US dollar. The COT report indicates that long non-commercial positions decreased from the level of 44,686 to the level of 44,223, while short non-commercial positions increased from the level of 36,717 to the level of 47,720. As a result, the non-commercial net position turned negative and amounted to -3,496, against 7,969. Last week's closing price fell from 1.3886 to 1.3668
Signals of indicators:
Moving averages
Trading is conducted above 30 and 50 daily averages, which indicates the probability of further growth of the British pound.
Note: The period and prices of moving averages are considered by the author on the hourly chart H1 and differ from the general definition of the classic daily moving averages on the daily chart D1.
Bollinger Bands
A break of the upper limit of the indicator in the area of 1.3896 will lead to a new wave of the British pound. A break of the lower limit of the indicator in the area of 1.3860 will increase the pressure on the pair.
Description of indicators
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. The graph is marked in yellow.
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. The graph is marked in green.
- MACD indicator (Moving Average Convergence / Divergence - moving average convergence/divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-profit speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet specific requirements.
- Long non-commercial positions represent the total long open position of non-commercial traders.
- Short non-commercial positions represent the total short open position of non-commercial traders.
- Total non-commercial net position is the difference between the short and long positions of non-commercial traders.
