To open long positions on GBP/USD, you need:
In my forecast for the first half of the day, I paid attention to the resistance of 1.3933 and recommended opening short positions. Let's look at the 5-minute chart and talk about what happened. Unfortunately, just a couple of points were not enough to form a false breakdown in the resistance area of 1.3933, the growth which occurred immediately after the release of data on the index of business activity in the manufacturing sector of the UK. We did not reach the other levels indicated. Thus, there were no signals formed in the first half of the day. For the second half of the day, the technical picture has undergone only minor changes. Before talking about a repeated return to the resistance of 1.3933, below which the moving averages are playing on the sellers' side, buyers need to think about protecting the support of 1.3888, which was formed at the end of the morning session from the level of 1.3881. Only the formation of a false breakdown, together with weak data on the US ISM index for the manufacturing sector, will be a signal to open long positions in the hope of restoring the pair and continuing the upward trend. In the absence of active actions on the bulls in the area of 1.3888, it is best to postpone long positions until the minimum of 1.3844 is updated. I advise buying GBP/USD immediately for a rebound only from the support of 1.3807 with the aim of an upward correction of 25-30 points within the day. If we again observe the pound's growth after the data in the second half of the day, the focus of buyers will move to the resistance of 1.3933. Its breakout with a reverse test from top to bottom forms a signal to open long positions in the expectation of a return to the highs of last month — to the area of 1.3978. The longer-term target remains the resistance of 1.4019, the test of which will mean the continuation of the bull market for the pound.
To open short positions on GBP/USD, you need:
The task of the bears remains to protect the resistance of 1.3933, which they successfully coped with today in the first half of the day. Given that the moving averages are slightly lower, and there is a downward correction in the market – it will be possible to do this during the American session. The formation of a false breakout will maintain temporary pressure on the pound, which will form a signal to open short positions in the expectation of a decline in the pair to the support of 1.3888. The breakdown of this level will depend on data on manufacturing activity in the United States, which may be better than economists' forecasts. The test of 1.3888 will hit the bulls' stop orders from the bottom up and push the pound to the next support — 1.3844, where it is worth thinking about profit-taking. The area of 1.3807 remains the longer-range target. In the absence of active actions of sellers in the area of 1.3933, I advise you to postpone sales until the next major resistance — 1.3978, or open short positions on GBP/USD immediately for a rebound from 1.4019, 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 complete 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 start talking more about plans to reduce the bond purchase program. I have repeatedly drawn attention to the fact that traders pay special attention to every major drop in the GBP/USD. They show interest in it because the Central Bank will start talking about curtailing measures to support the economy sooner or later, which will positively impact 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. The closing price of last week fell from 1.3886 to 1.3668.
Signals of indicators:
Moving averages
Trading is conducted above 30 and 50 moving averages, which indicates an attempt by the bulls to continue the upward trend in the pair;
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:
The growth will be limited near the upper level of the indicator 1.4230. If the pair falls, the lower border of the indicator in the area of 1.4130 will provide 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.
