Yesterday, in the first part of the day, traders did not receive any signal to enter the market. However, the US trade brought much more interesting events. Let us focus on the 5-minute chart to figure out the situation. Earlier, I asked you to pay attention to the level of 1.2317 to decide when to enter the market. An attempt to rise to 1.2317 turned out to be unsuccessful since during the European session, market volatility was really low. In the second part of the day, bulls protected 1.2241 and formed an entry point, but the pair did not show a significant increase from this level. A breakout and test of 1.2241 made traders close long positions and open short ones. As a result, the pair slumped by more than 60 pips.
Conditions for opening long positions on GBP/USD:
Bulls failed to protect the middle level of the sideways channel, thus causing the pound's sell-off in the second part of the day. It is obvious that traders do not want to open long positions near 1.2317. Now we should find out whether there are those who are ready to buy near the lower limit of the range of 1.2171. Today, traders should pay attention to the BoE consumer credit report and the UK retail sales figures. In addition, Andrew Bailey's interview may unveil a lot of important facts. If he admits the aggravation of the UK economic health amid higher interest rates, pressure on the pound sterling will increase. In this case, the currency will continue losing value and buyers will have to protect the nearest support level of 1.2171. If the pair hits this level and forms a false breakout, traders will receive the first long signal with the target at the middle level of the sideways channel - at 1.2244. This action may stabilize the market situation. A breakout and downward test of 1.2244 will give a long signal with the target at 1.2317, slightly above the upper limit of the range. The pair failed to exceed this level last week. A breakout of this level will give another long signal with the target at 1.2400, where it is recommended to lock in profits. The next target is located at 1.2452. If the pound/dollar pair drops and buyers fail to protect 1.2171, pressure on the pair may surge.Against the backdrop, it will be better to avoid long positions until the price hits the nearest support level of 1.2102. Traders may open long orders only after a false breakout of this level. It is also possible to go long from 1.2030 or lower – from 1.1938, expecting a correction of 30-35 pips.
Conditions for opening short positions on GBP/USD:
Yesterday, bears managed to break below 1.2241. If the pound sterling increases amid today's reports, a false breakout of 1.2244 will give the first sell signal with the target at the lower limit of the range - at 1.2171. If the pair settles below 1.2171 and upwardly breaks this level, bulls' stop orders will be seriously affected, thus forming a new sell signal with the target at 1.2102, where traders should partially lock-in profits. The next target is located at 1.2030. If the pair tests it, buyers will be defeated. If the pound/dollar pair advances and bears fail to protect 1.2244, only strong data from the US may give a sell signal. In addition, a false breakout of the resistance level of 1.2317 will give a good sell signal. If bears fail to protect 1.2317, the pair may soar. In this case, it will be better to avoid sell orders until the price hits 1.2400. There, traders should sell after a false breakout since demand for the pound sterling may jump. Traders may also initiate sell orders from 1.2452 or higher – from 1.2848, expecting a decline of 30-35 pips.
According to the COT report from June 21, the number of both long and short positions dropped. Last week, the UK inflation report proved that the Bank of England took the right measures concerning its monetary policy. In May, inflation jumped, but did not surprise traders since the recent forecasts showed that by the end of the year the CPI might exceed 11.0%. Big players benefited from the situation and enlarged the volume of long positions. However, judging by the report, we see that the number of traders who want to sell at the current lows is becoming smaller, thus supporting the pound sterling. It seems that the Fed's approach is not impressing traders any more. That is why it is high time to buy cheap risk assets. The COT report unveiled that the number of long non-commercial positions inched down by 873 to 28,470, whereas the number of short non-commercial positions declined by 3,222 to 91,717. As a result, the negative value of the non-commercial net position dropped from -65,596 to -63,247. The weekly closing price rose to 1.2295 against 1.1991.
Signals of indicators:
Trading is performed below 30- and 50-day moving averages, which points to a possibility of a bearish movement.
Note: The period and prices of moving averages are considered by the author on the one-hour chart that differs from the general definition of the classic daily moving averages on the daily chart.
If the pair increases, the resistance level will be located at 1.2230. If the pound/dollar pair slides, the support level will be seen at the lower limit of the indicator of 1.2171.Description of indicators:
- Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 30. It is marked in green on the graph.
- MACD indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). A fast EMA period is 12. A slow EMA period is 26. The SMA period is 9.
- Bollinger Bands. The period is 20.
- Non-profit speculative traders are individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial positions is a total number of long positions opened by non-commercial traders.
- Short non-commercial positions is a total number of short positions opened by non-commercial traders.
- The total non-commercial net position is a difference in the number of short and long positions opened by non-commercial traders.