GBP/USD: plan for the European session on July 12. COT reports. The pound continues to free-fly and head towards another yearly low

When to go long on GBP/USD:

Several market entry signals were formed yesterday. Let's take a look at the 5-minute chart and see what happened. I paid attention to the 1.1934 level in my morning forecast and advised making decisions from it. As a result of the lack of activity on the part of bulls on the British pound, especially considering what was Friday's statistics on the US, the pressure on the pound returned and it was possible to observe a test of the level of 1.1934. The false breakout gave an excellent buy signal. As a result, the upward movement left just over 35 points. The pressure on the pair returned in the afternoon, but it was not possible to get a good entry point for short positions. Forming a false breakout at the next annual low in the area of 1.1877 allowed entering the market in long positions, which led to a slight upward correction by 35 points.

COT report:

Before analyzing the technical picture of the pound, let's look at what happened in the futures market. An increase in both short and long positions was recorded in the Commitment of Traders (COT) report for July 5, but the former turned out to be much larger, which led to an increase in negative delta. Another attempt to buy out the annual low failed after it became obvious that the Bank of England intends to continue to fight inflation by raising interest rates, which will definitely slow down the British economy even more and push it into recession. The crisis in the cost of living in the UK continues to flare up more and more, and the recent resignation of British Prime Minister Boris Johnson is unlikely to help quickly deal with this. There are no prerequisites for buying the British pound, except for the fact that it has updated the next annual lows. The policy of the Federal Reserve and its pace of raising interest rates in the US gives the dollar much more support, since there are no such problems with the economy. This was confirmed by recent data on the US labor market for June this year. The COT report indicated that long non-commercial positions rose by 4,434 to 39,618, while short non-commercial positions jumped by 7,524 to 95,826, which led to an increase in the negative value of the non-commercial net position to -56,208 from level -53,118. The weekly closing price decreased and amounted to 1.1965 against 1.2201.

Today there are no statistics on the pound that can stop the bear market observed at the beginning of this week. Apparently, the pair will continue to fall and renew the annual lows, as the speech of a member of the Monetary Policy Committee, John Cunliffe, will not leave a trace for the market. So far, there is not even any divergence on the MACD, which usually indicates an oversold or overbought trading instrument. Therefore, only a false breakout in the immediate support area of 1.1870 will provide a buy signal that can stop the bearish frenzy that is currently being observed. The primary target in this case will be the nearest resistance at 1.1925, where the moving averages are, playing on the bears' side. Consolidating above this range and a downward test from above will provide a buy signal with the goal of a larger recovery to the 1.1925 area. The bulls will obviously take a break there. A more distant target will be the area of 1.1979, where I recommend taking profits.

In case the pound falls further during the European session and lack of activity at 1.1870, I advise you to hold back from long positions until the next support at 1.1816. Forming a false breakout there, by analogy with what I analyzed above, will provide an entry point into long positions, counting on at least some upward correction. You can buy GBP/USD immediately on a rebound from 1.1742, or even lower - in the area of 1.1647, counting on correcting 30-35 points within the day.

When to go short on GBP/USD:

The bears have achieved another renewal of the annual low and now their primary task will be to settle below 1.1870. Having taken control of this level, you can safely count on a succeeding decline in the pair. Of course, the best option for opening short positions would be forming a false breakout in the area of the nearest resistance at 1.1925, where the moving averages also pass. This level was formed on the basis of yesterday's results, which will provide an entry point for the pair to fall and then break through the support at 1.1870. A breakthrough and reverse test from the bottom up of this range will bring the GBP/USD to a low of 1.1816, leaving a good opportunity to update 1.1742. A more distant target will be the area of 1.1647, where I recommend taking profits.

If the pair rises during the European session and there are no bears at 1.1925, the bears may loosen their grip. In this case, I advise you to hold back from short positions until 1.1979. I advise you to sell the pound there only after a false breakout. You can open short positions immediately for a rebound from the high of 1.2034, or even higher - from 1.2083, based on the correction of the pair down by 30-35 points within the day.

I recommend to read:

Indicator signals:

Moving averages

Trading is below 30 and 50 moving averages, which indicates a continuation of the pound's decline.

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

A breakthrough of the lower border of the indicator in the area of 1.1857 will increase pressure on the pair. If the pair grows, the upper border of the indicator around 1.1925 will act as resistance.

Description of indicators