To open long positions on GBP/USD, you need:
Quite interesting events have already taken place in the first half of the day. Let's look at the 5-minute chart and figure out the deals. The formation of a false breakdown in the resistance area of 1.3937 led to the formation of a sell signal for the pound, and it was quite possible to expect that the market would come to its senses and the pressure on the pound would return. However, this did not happen. An instant breakdown of this range and a reverse test from top to bottom led to the formation of a buy signal for the pound, after which there was an increase of 30 points. We have not reached the resistance of 1.3978 yet, but the chances of this are still relatively high.
In the second half of the day, the focus will shift to data on the US economy for the 2nd quarter of this year, where growth is projected to increase by 8.4% immediately. If the data exceeds the forecasts of economists, the demand for the US dollar will return. However, it is unlikely to remain for a long time. In the meantime, buyers' focus is on the resistance of 1.3978, which I would like to reach even before the data is released. As long as the trade is conducted above the support of 1.3937, the chances of this will remain. A break and consolidation at the level of 1.3978 with its reverse test from top to bottom will push the pound to buy and to grow in the area of new local highs: 1.4019 and 1.4097. A more distant target will be the resistance of 1.4128, where I recommend fixing the profits. If the US GDP data surpasses even the most ambitious economists' forecasts, the pound will likely show a decline in the second half of the day. The main task of the bulls will be to maintain control over the level of 1.3937, below which there are several stop orders. Their demolition will quickly collapse the pound. Therefore, only the formation of a false breakdown will be a signal to open new long positions to continue the upward trend. In the absence of active actions on the part of buyers in the area of 1.3937, it is best to postpone long positions until the update of the minimum of 1.3896, where the moving averages are passing, playing on buyers' side. I recommend opening long positions immediately for a rebound only in the area of 1.3854 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 1.3978. The formation of a false breakdown and good data on the American economy will return pressure on the pound or at least slow down its bullish trend. In this scenario, you can sell and count on the pair's decline to the support area of 1.3937, which the bears missed today in the first half of the day. The breakdown of this level range will probably fall on the stop orders of the bulls. Thus, we can expect a more significant movement of the pair to the support of 1.3896, where I recommend fixing the profits. A more distant target will be the area of 1.3854. In the case of the pair's growth in the second half of the day, as well as the lack of active sellers' actions in the area of 1.3978, I recommend postponing sales until the next significant resistance of 1.4019 or selling GBP/USD immediately for a rebound from 1.4097, 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 significant 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 to the fact 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. 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 remains the purchase of 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
In the case of a downward correction of the pair, the average border of the indicator in the area of 1.3900 will act as support.
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.
