Only one signal was formed to enter the market yesterday. Let's take a look at the 5-minute chart and see what happened. I paid attention to the 1.1925 level in my morning forecast and advised making decisions from it. A good UK GDP growth report led to a sharp jump in the pound to the 1.1925 area, but the bulls failed to settle above this range. As a result, a false breakout and a sell signal were formed, which resulted in the pound's decline by more than 40 points. It was not possible to form normal signals for entering the market amid a strong surge in volatility after the US inflation data was released in the afternoon. The nearest support and resistance levels were blurred, or turned out to be quite far from the entry point.
When to go long on GBP/USD:
The spike in US inflation can be attributed to a strong labor market, energy prices, as well as supply disruptions and Covid in China. Throw in two years of economic stimulus, trillions in liquidity injections and Covid money to every American, and you get a clear picture of why prices continue to rise. To all appearances, the situation is unlikely to improve in the near future, so I would not particularly count on the upward correction of risky assets against the US dollar. Today there are no statistics on the UK that can help the pound to stay near the current annual low, so do not be surprised if the pressure on the pair increases in the first half of the day. In case the pound falls, the bulls will definitely show themselves in the area of the nearest support at 1.1831, but whether they will be able to hold it is a big question. Forming a false breakout there will be an excellent signal to open long positions in order to move up to the nearest resistance area of 1.1887, where the moving averages pass, limiting the pair's upward potential. Therefore, only a breakthrough of this level and a downward test will create a more powerful upside momentum, opening the way to 1.1936. A similar breakthrough of this level, which may take place after weak US reports, will lead to another entry point into long positions with the prospect of exiting at 1.1985, where I recommend taking profits. A more distant target will be the area of 1.2034, which will be a clear application for building a new upward trend.
If the GBP/USD falls and there are no bulls at 1.1831, and everything goes towards this, this will increase pressure on the pair. In this case, I recommend postponing long positions to 1.1742. I advise you to buy there only on a false breakout. You can open long positions on GBP/USD immediately for a rebound from 1.1647, or even lower - around 1.1575, counting on correcting 30-35 points within the day.
When to go short on GBP/USD:
The main task for today is to protect the important resistance at 1.1887, the test of which may take place in case of an unsuccessful attempt to break through 1.1831 in the first half of the day. But in order to maintain control of the market, bears need to consolidate below 1.1831 as quickly as possible, since now they cannot do without updating the weekly low. Taking into account yesterday's inflation data in the US and continued demand for the dollar, the breakthrough of 1.1831 should pass without much breakdown. In case GBP/USD grows in the first half of the day, forming a false breakout at the level of 1.1887, where the moving averages pass, will provide the first entry point into short positions in continuation of the bearish scenario. Consolidation below 1.1831 and a reverse test from the bottom up will strongly affect the bulls' stop orders, which create another entry point for short positions on the pound with a decrease to 1.1742, where I recommend partially taking profits. A more distant target will be the area of 1.1647, the test of which will be evidence of the resumption of the downward trend.
In case GBP/USD grows and the absence of bears at 1.1887, although the situation will not change in the bulls' direction, it will be possible to see a more significant upward correction. In this case, I advise you not to rush into short positions. Only a false breakout in the area of the next resistance at 1.1936 will provide an entry point to short positions, counting on the pair's bounce downward. If there is no activity there, another upsurge may occur amid the removal of speculative sellers' stop orders. In this case, I advise you to hold back from short positions until 1.1985, where you can sell GBP/USD immediately for a rebound, counting on the pair's rebound down by 30-35 points within the day.
COT report:
An increase in both short and long positions was recorded in the Commitment of Traders (COT) report for July 5, but the former turned out to be much larger, which led to an increase in negative delta. Another attempt to buy out the annual low failed after it became obvious that the Bank of England intends to continue to fight inflation by raising interest rates, which will definitely slow down the British economy even more and push it into recession. The crisis in the cost of living in the UK continues to flare up more and more, and the recent resignation of British Prime Minister Boris Johnson is unlikely to help quickly deal with this. There are no prerequisites for buying the British pound, except for the fact that it has updated the next annual lows. The policy of the Federal Reserve and its pace of raising interest rates in the US gives the dollar much more support, since there are no such problems with the economy. This was confirmed by recent data on the US labor market for June this year. The COT report indicated that long non-commercial positions rose by 4,434 to 39,618, while short non-commercial positions jumped by 7,524 to 95,826, which led to an increase in the negative value of the non-commercial net position to -56,208 from level -53,118. The weekly closing price decreased and amounted to 1.1965 against 1.2201.
Indicator signals:
Moving averages
Trading is conducted below the 30 and 50-day moving averages, which indicates the pound's continuous decline.
Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
In case of growth, the area of 1.1936 will act as resistance. In case the pair falls, the lower border of the indicator around 1.1831 will act as support.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart.
- MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain 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 short and long positions of non-commercial traders.
