GBP/USD 1H
The GBP/USD pair continued to adjust on Tuesday and managed to overcome the upward trend line as a result. Thus, we can state that buyers have taken a pause for some time and now the hour of bears has come. However, after overcoming the upward trend line, sellers almost immediately lost their positions and an upward pullback began. Despite the fact that a downward movement is now more preferable both from a technical point of view and from a fundamental point of view, the bears do not seem to have sufficient forces to move down. However, given the proximity of local highs and the fact that the bulls have also loosened their grip, we do not recommend trading higher now. After all, the pound sterling has already grown quite sharply, after which there was not even a normal correction in size.
GBP/USD 15M
Both linear regression channels are directed downward on the 15-minute timeframe, signaling that traders are no longer considering long positions and are ready for a downward movement. The latest Commitments of Traders (COT) report for the British pound was even more suspicious than the previous one. The penultimate COT report for July 15-21 showed that non-commercial traders opened more Sell-contracts than Buy-contracts, however, the British pound continued to grow during this period. Friday's COT report showed roughly the same pattern. The non-commercial category of traders, which is considered the "engine" of the market, opened 2,700 Sell-contracts and closed (!) 8,700 thousand Buy-contracts. Thus, the net position for this category of traders has fallen even further, which means that the bearish mood has increased. The British currency has started to fall in recent days, that is, in days that are not covered by the latest COT report. It turns out that professional traders have been getting rid of Buy-contracts for two weeks, and the pound began to fall only a couple of days ago. We believe that this certain behavior from non-commercial traders indicates that the market is preparing for a new and prolonged fall in the British currency. Of course, this is just a hypothesis now, but nevertheless.
The fundamental background for the GBP/USD pair did not change much on Tuesday, August 4, as no important macroeconomic reports were released during the day. There was no news on Brexit talks. There was no fundamentally new information from the United States about the coronavirus epidemic, the riots caused by the racist scandal, or about the negotiations between Republicans and Democrats on a new stimulus package for the US economy. Thus, market participants are already fed up with information about the high rates of spread of COVID-2019 in the United States, as well as about the inaction of the American government. Traders are also tired of the controversial statements by US President Donald Trump, who believes that "a vaccine is about to be created" and "the coronavirus is beginning to recede." Buyers are no longer willing to buy the pound and sell the dollar based on this information. Accordingly, new disappointing information from overseas is required to resume the upward trend. But in order for the downward movement to continue, the current technical factors and the overbought British currency are enough. In addition, the Bank of England will hold a meeting on Thursday, which can potentially become a source of a new portion of negativity, and the GDP for the second quarter in Britain will be released at the beginning of next week, which may contract by 20% and also put pressure on the positions of the British currency.
There are two main scenarios as of August 5:
1) Buyers let the initiative out of their hands when they put quotes below the upward trend line. Thus, there are no technical structures that would support the bulls now. The proximity of local highs makes us consider purchases with great caution. We advise you to refrain from new purchases for the time being, as consolidating the price above the Kijun-sen line is not a strong signal right now.
2) You are advised to open new short positions on the pound/dollar pair while aiming for the Senkou Span B line (1.2908) and the support level of 1.2850 in the event of a price rebound from the Kijun-sen line (1.3060). However, the price rebound from this line should be eloquent. The potential Take Profit in this case is from 110 to 160 points.