GBP/USD 1H
The GBP/USD pair also continued to trade higher on Monday, ignoring the long-maturing technical need for a correction. However, the trend is now quite strong, and to be more precise, the fundamental background for the pair is very strong. It continues to push the quotes up. The upward trend line continues to support buyers, although a few days ago there were a couple of precedents that signaled a possible change in the trend. This is also indicated in the Commitment of traders (COT) report (see below). Thus, if the upward trend in the euro does not raise any questions, it is still not so confident in the pound. The fundamental background also leaves sellers the opportunity to switch on and enter the market at any time. The first call to change the trend will be to break the trend line.
GBP/USD 15M
Both linear regression channels are still directed upward on the 15-minute timeframe, so there are no prerequisites for changing the trend direction at the moment. The latest COT report on the British pound sterling is very alarming. The fact is that during the reporting period (July 15-21), the British currency grew against the dollar, but the non-commercial, which is the most important category of traders, was actively opening Sell-contracts at that time. In just a week, non-commercial traders opened 4,500 new Sell-contracts and only 3,000 Buy-contracts. Thus, the net position decreased by about 1,500, which implies that the bearish mood among the major players is strengthening. However, as we said, the pound was growing during that time period. The most interesting thing is that the commercial category also did not open Buy contracts. Quite the opposite, it got rid of them, closing almost 5,000. Thus, both groups of traders did NOT increase longs, nevertheless, the pound rose in price and continues to grow in price to this day. We believe that this is a signal for an emerging trend change, but this does not mean that it will happen on Tuesday. It is rather strange to observe the currency's growth, which is mostly sold by the major players.
The fundamental background for the GBP/USD pair can be described as mutually negative. Because it is equally bad in the United States and in the UK. However, traders for once completely ignore the negative from Great Britain or consider it insignificant. But at the same time, they completely focus their attention on what is happening in the United States. And we see a large number in the US. There is so much negativity that it is not clear how the country will get out of this hole, in which it fell in just six months. Do not forget that the trade deal with China is also in danger of being disrupted since relations between Beijing and Washington continue to heat up. If China decides to terminate the first phase, it will not only mean an escalation of the trade conflict, but also put an end to the hopes of the world community for the second phase of the agreement. And this will just be a verdict for US President Donald Trump, since a huge number of American farmers will lose their market, which is unlikely to cause them indescribable delight. And, accordingly, it is unlikely that they will run to the polls on November 3 to cast their vote for Trump. Beijing may well strike a similar blow, since it has long ago realized that it will not be possible to negotiate a good deal with Trump. One hope is for Joe Biden, who is already about 90% likely to become the next president of the United States.
There are two main options for the development of events on July 28:
1) The outlook for the bulls continues to be very positive while the pair continues to stay above the trend line. The first target for the week was reached on Monday - the resistance level of 1.2889. The bulls did not manage to overcome it, so now a correction to the trend line is possible, and it is advised to open new longs after breaking the 1.2889 level with a target of 1.2988 or after the correction has been completed. In this case, the potential Take Profit will be about 80 points.
2) Sellers are advised to start considering the possibility of opening short positions with the target of the Senkou Span B line (1.2622), but for this they need to wait until the Kijun-sen line (1.2773) and, accordingly, the trend line is overcome. In this case, the potential Take Profit is about 120 points.