When to go long on GBP/USD:
Several fairly profitable market entry signals were formed yesterday. Let's take a look at the 5-minute chart and see what happened. I paid attention to the 1.1994 level in my morning forecast and advised making decisions from it. Failure to break through above this range in the morning resulted in a sell signal, but the downward move was only about 20 points before the bulls made a third breakthrough of 1.1994. Testing this area gave a buy signal, which resulted in a large increase to 1.2040, making it possible to take about 40 points from the market. As a result of the pound's gains in the afternoon, a false breakout at 1.2053 led to a sell signal and the pair moved down 30 points, while a false breakout at 1.2084 and a sell signal resulted in a fall of more than 50 points from the entry point.
COT report:
Before analyzing the technical picture of the pound, let's look at what happened in the futures market. The Commitment of Traders (COT) report for July 19 showed that both short and long positions decreased, but the former turned out to be slightly smaller, which led to a slight decrease in the negative value of the delta. It is clear that the bulls have bought back the yearly lows in the pound and are now trying in every possible way to show that the UK economy is not so bad and that the Bank of England's actions in relation to interest rates make sense. The pound's succeeding growth will depend on the Federal Reserve's decisions taken in the middle of this week. Obviously, the central bank will immediately raise interest rates by 0.75%, which may lead to the strengthening of the dollar, but on the condition that the central bank will continue to adhere to such an aggressive policy. If not, then the chance for the pound's succeeding growth will increase, as the BoE meeting will take place in August, at which interest rates may also be raised. However, it is not rational to expect that the pound bull market will last for a very long time, given the crisis in the cost of living in the UK and the economy gradually sliding into recession. The COT report indicated that long non-commercial positions decreased by 1,907 to 31,943, while short non-commercial positions decreased by 3,746 to 89,193, which led to a decrease in the negative value of the non-commercial net position to -57,250 from the level of -59,089. The weekly closing price increased and amounted to 1.2013 against 1.1915.
Today there are no statistics for the UK, and the retail sales report from the Confederation of British Industry is unlikely to have a significant impact on the market - especially in the current bullish trend. It is obvious that the bulls' primary task is to protect the nearest support level of 1.2039, formed on the basis of yesterday. There are also moving averages, playing on the bulls' side. In case the pair falls, I advise you to count on a false breakout around 1.2039, which will provide a new buy signal that can continue the bullish trend for the pound. The target will be the nearest resistance at 1.2087, which the bulls ran into yesterday and above which it was not possible to get out even during today's Asian session. Consolidation above this range and a reverse test from top to bottom will provide a buy signal with the goal of a larger recovery to the 1.2119 area. I believe the bulls will again take a break in that area. A more distant target will be the area of 1.2160, where I recommend taking profits. But it is worth remembering that we have a Fed meeting ahead of us, so the pair's upside potential will be limited.
In case the pound falls during the European session and the lack of activity at 1.2039, I advise you to postpone long positions until the next support at 1.1997. Forming a false breakout there, by analogy with what I analyzed above, will provide an entry point into long positions, counting on forming the lower border of the ascending channel. You can buy GBP/USD immediately on a rebound from 1.1941, or even lower - in the area of 1.1893, counting on a correction of 30-35 points within the day.
When to go short on GBP/USD:
The bears missed the hopeful 1.2040 last week and now they need to do everything possible to regain control of this level. Of course, the best option for opening short positions would be forming a false breakout in the area of the new resistance at 1.2087, which has already been tested twice over the past day. For this reason, there is little faith in this level. Failure to settle above 1.2087 will provide an entry point for the pair to fall and then break through the support at 1.2039, on which a lot depends on these conditions. A breakthrough and reverse test from the bottom up of this range will bring the GBP/USD to a low of 1.1997, leaving a good opportunity for a return to 1.1941. A more distant target will be the area of 1.1893, the test of which will testify to the resumption of the medium-term bearish trend.
If the pair grows during the European session and there are no bears at 1.2087, the bears may step aside again. In this case, I advise you to postpone short positions until 1.2119. I advise you to sell the pound there only after a false breakout. You can open shorts immediately for a rebound from the high of 1.2160, or even higher - from 1.2207, based on the correction of the pair down by 30-35 points within the day.
I recommend to read:
Indicator signals:
Moving averages
Trading is conducted above 30 and 50 moving averages, which indicates an attempt to continue the growth.
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
A breakthrough of the lower border of the indicator in the area of 1.2025 will increase pressure on the pair. If the pair grows, the upper border of the indicator around 1.2080 will act as resistance.
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.
