Yesterday, the pound/dollar pair formed several entry signals. Let's look at the 5-minute chart and figure out what actually happened. In my morning forecast, I turned your attention to the level of 1.2697 and recommended making decisions with this level in focus. Growth and a false breakout at this mark produced a sell signal. However, this did not result in a major sell-off closer to the afternoon. Therefore, I decided to leave the market and reviewed the technical picture. In the afternoon, a decline and protecting the 1.2623 level produced a good buy signal. As a result, the upward movement brought more than 80 pips of profit.
COT report:
Before analyzing the technical picture of the pound, let's take a look at what happened in the futures market. The Commitments of Traders (COT) report for August 8th recorded a decline in both long and short positions. Traders have been closing their positions ahead of important UK GDP data, realizing that the Bank of England would continue to raise interest rates, no matter the cost. Good data on the British economy allowed the market to maintain balance, preventing a significant sell-off of the British pound last week, which was triggered by another increase in inflation in the US. However, the optimal strategy is to buy the pound on dips, as the difference in the policies of the central banks will affect the prospects of the US dollar, putting pressure on it. The latest COT report indicates that long positions of the non-commercial group of traders have decreased by 8,936 to 93,239, while short positions fell by 6,394 to 36,219. As a result, the spread between long and short positions increased by 185. The weekly closing price dropped to 1.2749 compared to the prior value of 1.2775.
For long positions on GBP/USD:
Today, the UK will release important reports on the claimant count, average earnings and the UK unemployment rate itself. Good figures and wage growth may fuel long positions on the pound, but we don't know whether buyers will be able to last long in the current conditions.
In such a case, it would be better to act on a decline, after forming a false breakout in the area of the same support level at 1.2670, which I relied on yesterday. The moving averages are slightly above this mark, which will produce a good signal and this may lead to a surge towards the resistance area of 1.2725. A breakout and a downward test of this range will produce a buy signal, giving the bulls a boost, and making it possible for the pound to reach a new high at 1.2773. In case it rises above this range, we can talk about a breakout to 1.2812 where I will be taking profits.
If GBP/USD falls and there are no bulls at 1.2670, especially in the case of weak labor market data, the pressure will increase, thereby leading to a larger sell-off. If that happens, I will postpone opening long positions until it reaches 1.2623. Positions should be opened there only on a false breakdown. It is possible to open long positions on GBP/USD immediately if it rebounds off 1.2592 targeting a correction of 30-35 pips intraday.
For short positions on GBP/USD:
The bears did their best yesterday, but buyers are clearly interested in a lower value of the pound. In the morning, the strategy is to keep the pair below 1.2725. A false breakout at this mark will generate a sell signal with a prospect of falling to the support level at 1.2670, which was formed at the end of yesterday. A breakout of this level and its upward retest will produce a sell signal, offering a chance for updating 1.2623 - this month's low. A more distant target will be 1.2592 where I will take profits.
If GBP/USD grows and there is no activity at 1.2725, amid strong UK reports, the bulls will regain control over the market, and they will get the chance to start an upward correction. Only a false breakout near the next resistance level at 1.2773 would provide an entry point for going short. If there is no downward movement there, I would sell the pound on a rebound from 1.2812, hoping for an intraday correction of 30-35 pips.
Indicator signals:
Moving Averages
Trading is taking place around the 30-day and 50-day moving averages, indicating a sideways market trend.
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.
Bollinger Bands
If GBP/USD grows, the indicator's upper border near 1.2720 will serve as resistance. If it falls, the indicator's lower border near 1.2635 will serve as support.
Description of indicators:
• A moving average of a 50-day period determines the current trend by smoothing volatility and noise; marked in yellow on the chart;
• A moving average of a 30-day period determines the current trend by smoothing volatility and noise; marked in green on the chart;
• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA with a 12-day period; Slow EMA with a 26-day period. SMA with a 9-day period;
• Bollinger Bands: 20-day period;
• Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements;
• Long non-commercial positions represent the total number of long positions opened by non-commercial traders;
• Short non-commercial positions represent the total number of short positions opened by non-commercial traders;
• The non-commercial net position is the difference between short and long positions of non-commercial traders.
