GBP/USD: plan for the European session on July 27. COT reports. Pound ready to return to this month's highs, but traders need to try hard

To open long positions on GBP/USD, you need:

Several signals to enter the market were formed yesterday. Let's take a look at the 5 minute chart and talk about what happened. It is clearly seen how in the first half of the day the bears are protecting the resistance at 1.3769, forming a signal from it to open short positions, which leads to the pair falling by more than 30 points.

Before talking about further prospects for the GBP/USD movement, let's see what happened in the futures market. The Commitment of Traders (COT) report for July 20 recorded a slight reduction in long positions and a good rise in short ones. Despite the large fall in the pound, as we can see on the chart, the downward movement was quickly won back at the end of last week, but this report does not take this into account, therefore it seems that the pound was completely under the control of bears, but this is not the case. The panic after the lifting of all quarantine restrictions in the UK and the full opening of the economy occurred at a time when, after all this, a sharp increase in infections with a new strain of coronavirus began in England, and politicians argued with each other about how to respond to this. But then, by the middle of the week, the situation stabilized, and the pound managed to recover all its losses against the US dollar. Traders still expect Bank of England officials to start talking more about plans to cut back on the bond buying program soon. I have repeatedly drawn attention to the fact that traders pay special attention and take an interest in every major fall in GBP/USD downward, as sooner or later the central bank will talk about curtailing support measures for the economy, which will have a positive impact on the British pound and lead to its growth. But as long as there has not been a serious departure from the inflation target in the UK, the Bank of England is unlikely to rush to make changes to its policy. Despite this, the best scenario is to buy the pound for every good decline against the US dollar. The COT report indicated that long non-commercial positions declined from 44,686 to 44,223, while short non-commercial positions rose from 36,717 to 47,720. As a result, the non-commercial net position turned negative at -3,496. against 7,969. Last week's closing price fell from 1.3886 to 1.3668

Confederation of British Industrialists reports retail sales today that are unlikely to lead to a major spike in market volatility. However, if this indicator turns out to be better than the forecasts of economists, we can count on the further strengthening of the pair in the short term. Therefore, it is possible that against this background, the bulls will be able to find the strength to continue the upward trend observed since the end of last week. But, before counting on a jump, the bulls need to think about how to defend the support at 1.3811. Forming a false breakout there generates a signal to open long positions with the expectation of a recovery of the pair to the resistance of 1.3857. An equally important task for the bulls is to regain control over this resistance. A breakthrough and consolidation at 1.3857, followed by its test from top to bottom, creates another signal to open long positions in order for the pair to recover to this month's high in the 1.3896 area, where I recommend taking profits. If the pressure on the pair returns in the first half of the day, and the data on retail sales is disappointing, do not rush to buy around 1.3811. The optimal scenario will be long positions from the next support at 1.3774, where the moving averages are located, playing on the side of the bulls. I advise you to watch buying GBP/USD immediately for a rebound only from a low like 1.3742, counting on an upward correction of 25-30 points within the day.

To open short positions on GBP/USD, you need:

The bears need to work very hard to stop the bull market we have been seeing lately. Weak data on retail sales is unlikely to significantly hurt the pound, but it can be used. The top priority is to regain control over the support level at 1.3811. A breakthrough of this area and a reverse test of it from the bottom up can create a signal to open short positions in hopes of a downward correction and a return to the level of 1.3774, where the moving averages pass. Only the breakthrough of this range and the next reverse test from the bottom up will generate an additional sell signal for the test of 1.3742, where I recommend taking profits. A more difficult task for the bears is to decline to the low of 1.3708, a test of which could cancel out the bullish trend. If the pound rises in the first half of the day, only a false breakout in the resistance area of 1.3857 will be a signal to sell GBP/USD. I recommend opening short positions in the pound immediately on a rebound from a larger resistance in the area of 1.3896, counting on the pair's rebound down by 20-25 points within the day.

Indicator signals:

Trading is carried out above 30 and 50 moving averages, which indicates the continued growth of the pound in the short term.

Moving averages

Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the daily D1 chart.

Bollinger Bands

In case the pound falls, the lower border of the indicator in the area of 1.3788 will act as a support. In case of growth, the upper border at 1.3846 will act as a resistance.

Description of indicators