In my morning forecast, I emphasized the significance of the level at 1.2807 and suggested making trading decisions based on it. Now let's examine the 5-minute chart to analyze what occurred. The price surge and the subsequent false breakout led to a signal to open short positions, resulting in a 30-point decline. However, we did not reach the previously indicated target of 1.2761.
To initiate long positions on GBP/USD, the following conditions must be met:
The future direction of the pair is heavily reliant on US economic data. Fairly positive reports on US personal income and spending changes, along with the University of Michigan Consumer Sentiment Index, are expected. This could exert pressure on the pair and limit the pound's potential to rise. If GBP/USD declines during the second half of the day, I prefer to take action from the new support level at 1.2765, which formed at the end of the European session. A false breakout from that level will present an excellent entry point for a rise towards the new resistance at 1.2836, just above which the moving averages are situated, favoring the bears. If there is a breakthrough and retest from the top to the bottom of this range following weak US reports, it will generate an additional buy signal, renewing strength in the pound and potentially reaching the high of 1.2898, which is unlikely to be surpassed today. If a break above this range occurs, we can consider a surge towards 1.2944, where I will take profit.
In the scenario of GBP/USD declining and a lack of buyers at 1.2765, a significant support level, sellers will become active, aiming for further development of a bearish market. In that case, I will postpone initiating long positions until 1.2717. Buying will only be considered on a false breakout from that level. Alternatively, opening long positions on GBP/USD immediately on a rebound can be done from 1.2675 with the aim of a 30-35 point rebound within the day.
To initiate short positions on GBP/USD, the following conditions must be met:
The bears have already shown themselves once today but could not achieve anything at the daily lows. Consequently, I reviewed the technical picture and recommended focusing on the new resistance at 1.2836, located just above the moving averages, favoring the bears. A false breakout from that level after the release of strong US data indicating high inflationary pressure will trigger a sell signal, aiming for a decline toward the support at 1.2765. If there is a breakthrough and retest from the bottom to the top of this range, it will provide an entry point for selling to retest 1.2717. The ultimate target will be the minimum at 1.2675, where I will take profit. In the scenario of GBP/USD rising and a lack of bears at 1.2836 in the second half of the day, sellers will lose control of the market, leading to an upward correction. In that case, only a false breakout around 1.2898 will provide an entry point for short positions, expecting the pound to move downward. If there is no activity in that area, I recommend selling GBP/USD from 1.2944, expecting a 30-35 point rebound within the day.
The COT report (Commitment of Traders) for July 18 showed a significant increase in both long and short positions. Traders have begun to return to the market after a series of fundamental statistics, which indicates a relatively stable state of the British economy, gradually adjusting to high-interest rates. The sharp decline in inflation in the US triggered the pound's rise. Still, its overbought condition and the central bank's strict policy raise concerns about future labor and housing market issues in the UK. Sellers are taking advantage of this situation by building up short positions whenever convenient, as the COT report shows. Recent PMI reports also suggest growing problems. This week, the Federal Reserve will hold a meeting, and if it announces the end of the interest rate hike cycle, the pound may rise again. Buying the pound on declines remains the optimal strategy. The latest COT report states that long non-commercial positions increased by 23,602 to 135,269, while short non-commercial positions rose by 17,936 to 71,540. This led to another surge in the non-commercial net position to 63,729 from 58,063 a week earlier. The weekly closing price increased to 1.3049 from 1.2932.
Indicator signals:
Moving Averages
Trading is conducted below the 30-day and 50-day moving averages, indicating a further decline in the pound.
Note: The author considers the period and prices of the moving averages on the hourly chart (H1), which differs from the general definition of classic daily moving averages on the daily chart (D1).
Bollinger Bands
In case of a decline, the lower boundary of the indicator, around 1.2760, will act as support.
Description of Indicators
• Moving average (a moving average that determines the current trend by smoothing volatility and noise). Period 50. Marked in yellow on the chart.
• Moving average (a moving average that determines the current trend by smoothing volatility and noise). Period 30. Marked in green on the chart.
• MACD Indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). Fast EMA period 12. Slow EMA period 26. SMA period 9.
• Bollinger Bands (Bollinger Bands). Period 20.
• Non-commercial traders - speculators, such as individual traders, hedge funds, and large institutions, who use the futures market for speculative purposes and meet specific requirements.
• Long non-commercial positions represent the total long open positions of non-commercial traders.
• Short non-commercial positions represent the total short open positions of non-commercial traders.
• The net non-commercial position is the difference between non-commercial traders' short and long positions.
