In my morning forecast, I focused on the 1.2884 level and planned to make market entry decisions based on it. Let's examine the 5-minute chart to review what occurred. The rise and formation of a false breakout at that level provided a suitable entry point for short positions, but after the pound dropped by 15 points, the sellers' momentum faded. The technical outlook for the second half of the day remains unchanged.
For Opening Long Positions on GBP/USD:
UK retail sales unexpectedly outperformed economists' forecasts, maintaining the pair's upward potential, but the data did not lead to a more significant upward movement. From a technical standpoint, there is little reason to make changes. A decline and the formation of a false breakout at 1.2859, where the moving averages favor buyers, can only be expected in the case of strong statistics on building permits, housing starts, and a rise in the University of Michigan Consumer Sentiment Index. The target would be the morning resistance at 1.2884. A breakout and retest of this range from above would increase the chances of a further rise in the pound, providing an entry point for long positions with a potential move to 1.2910. The final target would be around 1.2939, where I would take profits. If GBP/USD declines without bullish activity at 1.2859, the pound could drop more significantly. This would lead to a decline and a retest of the next support at 1.2832, increasing the chances of a more substantial fall in the pair. Therefore, only the formation of a false breakout would be a suitable condition for opening long positions. I plan to buy GBP/USD immediately on a rebound from the 1.2800 low, targeting an upward correction of 30-35 points within the day.
For Opening Short Positions on GBP/USD:
Sellers have shown they are still in the game, but with every active move, there are buyers taking advantage of the declines. If the pair rises again amid weak U.S. statistics, it will be hard to rely on 1.2884 holding, so only a false breakout there, similar to the one I discussed earlier, would confirm the presence of large players betting on a decline in the pound by the end of the week. This would provide an opportunity to open new short positions with the target of retesting the support at 1.2859. A breakout and retest of this range from below, especially amid a hawkish stance from the Fed representatives (there are a couple of FOMC member interviews scheduled today) would hit the buyers hard, triggering stop orders and opening the path to 1.2832. The final target would be around 1.2800, where I would take profits. Testing this level would severely impact the bullish prospects for the pound. If GBP/USD rises and there is no bearish activity at 1.2884 in the second half of the day, which is more likely, buyers will have a good chance of further pushing the pair higher. In that case, I would delay selling until a false breakout occurs at 1.2910. If there is no downward movement there, I would sell GBP/USD immediately on a rebound from 1.2939, but only expecting a 30-35 point downward correction within the day.
In the COT (Commitment of Traders) report for August 6, there was a significant decrease in long positions and a modest reduction in short positions. Such a shift in the balance of power is not surprising, as the Bank of England made it clear after its meeting that it plans to cut interest rates. With inflation now under control, the economy needs special support like never before. Much will depend on the new inflation and labor market statistics, but it seems the British regulator will definitely go for at least one rate cut this fall, which limits the pound's current upward potential in the medium term. The latest COT report shows that non-commercial long positions fell by 39,555 to 126,087, while non-commercial short positions decreased by 2,483 to 54,681. As a result, the gap between long and short positions narrowed by 430.
positions narrowed by 430.
Indicator Signals:
Moving Averages:
Trading is above the 30 and 50-day moving averages, indicating a further rise in the pound.
Note: The period and prices of the moving averages are considered by the author on the hourly H1 chart and differ from the general definition of classic daily moving averages on the D1 daily chart.
Bollinger Bands:
In case of a decline, the lower boundary of the indicator around 1.2840 will serve as support.
Indicator Descriptions:
- Moving Average: Determines the current trend by smoothing out volatility and noise. Period 50. Marked in yellow on the chart.
- Moving Average: Determines the current trend by smoothing out volatility and noise. Period 30. Marked in green on the chart.
- MACD Indicator: Moving Average Convergence/Divergence—EMA period 12, Slow EMA period 26, SMA period 9.
- Bollinger Bands: Period 20.
- Non-commercial traders: Speculators such as individual traders, hedge funds, and large institutions using the futures market for speculative purposes and meeting certain requirements.
- Non-commercial long positions: The total sum of long open positions of non-commercial traders.
- Non-commercial short positions: The total sum of short open positions of non-commercial traders.
- Total non-commercial net position: The difference between short and long positions of non-commercial traders.
