To open long positions on GBP/USD, you need:
In my morning forecast, I paid attention to the level of 1.3874 and recommended making decisions from it. Let's look at the 5-minute chart and talk about what happened. It is visible how the British pound is subjected to a fairly abundant sale during the European session, but then it is very quickly bought off. The published report of the Bank of England on financial stability did not help the pound in any way, because the bulls did not even manage to protect the support of 1.3874. A small trade at this level led to a larger decline in the pound by the middle of the day, but there were no signals to enter the market.
Now the ideal option for buyers of the pound will be the formation of a false breakdown at the level of 1.3840, which forms a signal to open long positions in the hope of recovering to the resistance of 1.3874, which they missed today in the first half of the day. Such a scenario will be realized only if the data on US inflation turns out to be worse than economists' forecasts, which will return the demand for risky assets. A break of the level of 1.3874, as well as a test of this area from top to bottom, will form a new signal to buy GBP/USD and open a direct road to the maximum of 1.3906, which has not been possible to get above for a whole month yet. Please note that there are moving averages in the area of 1.3874, which are already playing on the side of the sellers of the pound, which may interfere with the quick plans of the bulls to return the market under their control. If the pressure on GBP/USD persists in the second half of the day, and the bulls do not show activity in the area of 1.3840, it is best to postpone long positions until the support update of 1.3806, where you can buy GBP/USD immediately for a rebound based on an upward correction of 25-30 points within the day.
To open short positions on GBP/USD, you need:
The bears' initial task now is to protect the area of 1.3874, which they successfully returned to their control in the first half of the day. The formation of a false breakdown together with strong data on explosive inflation in the US in the first month of summer 2021 form a good signal to sell the pound, which will push the pair to the support of 1.3840. Its breakdown will lead to the demolition of several buyers' stop orders and will collapse GBP/USD to a minimum of 1.3806, where I recommend fixing the profits. A more distant target will be the area of 1.3771. However, such a large drop in the pound can hardly be expected without serious market shocks or statements by representatives of the Bank of England on the topic of monetary policy. In the absence of active actions of sellers in the area of 1.3874, I recommend postponing sales until the test of a larger resistance of 1.3906, where you can open short positions immediately for a rebound based on a downward correction of 25-30 points within the day. The next major resistance is seen in the area of 1.3938.
Let me remind you that the COT reports (Commitment of Traders) for July 6 recorded an increase in both long and short positions, which led to an increase in the net position. Despite the weak fundamental data on the UK GDP growth rate in May this year, the pound continues to be in demand after the correction that was observed during the June meeting of the US Federal Reserve System. Now, after a major movement of GBP/USD down, traders are showing special interest, and the May data is not an obstacle to building up long positions, as everyone is waiting for more active economic growth in the summer period, even despite the Indian strain of coronavirus. However, the growth of the pound may be limited to a sharp increase in the incidence of diseases in the summer and the fact that the British regulator will not rush to change the bond purchase program is also a deterrent to the upward trend. While serious inflationary pressure in the UK will not be noticed, the Bank of England is unlikely to rush to make changes to its policy. Despite this, the optimal scenario remains the purchase of the pound with each good decline in pair with the US dollar. The COT report indicates that long non-commercial positions increased from the level of 51,596 to the level of 57,232, while short non-commercial positions increased from the level of 33,873 to the level of 35,329. As a result, the non-commercial net position increased to 21,903 against 17,723. The closing price of last week decreased and amounted to 1.3853 against 1.3878.
Signals of indicators:
Moving averages
Trading is conducted around 30 and 50 daily averages, which indicates an attempt by bears to intercept the market.
Note: The period and prices of moving averages are considered by the author on the hourly chart H1 and differ from the general definition of the classic daily moving averages on the daily chart D1.
Bollinger Bands
A break of the lower limit of the indicator in the area of 1.3860 will lead to a sharp drop in the pound. In the case of growth, the upper limit of the indicator in the area of 1.3906 will act as a resistance.
Description of indicators
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. The graph is marked in yellow.
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. The graph is marked in green.
- MACD indicator (Moving Average Convergence / Divergence - moving average convergence/divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-profit 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 the short and long positions of non-commercial traders.
