On Friday, there was just one signal formed to enter the market. Let's have a look at the 5-minute chart and try to figure out what happened there. In my morning review, I outlined the level of 1.1849 and recommended it as an entry point. Amid low market volatility, the pound bulls failed to reach the level of 1.1849, and, therefore, there was no false breakout of this level. So, I couldn't open short positions. Similarly, there were no buy signals at the level of 1.1785. In the afternoon, the pair formed a good sell signal after a failed attempt to rise above 1.1849. Yet, the price went down by just 25 pips and then the pound recovered.
For long positions on GBP/USD:
At the moment, the pair bulls have closely approached the key resistance of 1.1915, which may define the further trajectory of the pair. Given that today there is no important news in the first half of the day, buyers have every chance to continue the upside correction. Yet, they need to do their best as without the breakout of 1.1915, bulls are unlikely to succeed. A breakout and a retest of this level will generate a buy signal with the further target located at 1.1964. This is where I recommend taking profit. The price area of 1.2018 will serve as a more distant target. The test of this level will seriously affect bears. In case of a decline, bulls will assert their strength only near the support level of 1.1864. Just below this level, we can see two moving averages that currently support the bullish trend. At this level, the bulls are likely to build the lower boundary of a new ascending channel in an attempt to hit the bottom. If GBP/USD drops and the bullish activity is low at 1.1864, which is a very probable scenario given a strong bearish trend, I recommend waiting until the pair reaches at least the level of 1.1810. At this point, you can buy the pair only after a false breakout. Long positions on GBP/USD can be opened right after a rebound from 1.1762, or even lower - from 1.1707, keeping in mind a possible correction of 30-35 pips within the day.
For short positions on GBP/USD:
Today, the main task of the sellers is to protect the resistance level of 1.1915. Given the aggressive policy of the US Federal Reserve, buyers are unlikely to act and add more long positions on the pair ahead of an important FOMC meeting. The best scenario for now will be the formation of a false breakout at 1.1915. This will put the pair under pressure again with the next downward target found at the support of 1.1864. If bulls are idle there and the price settles below the level, a retest of the level from the bottom up will create another entry point to sell the pound with the next target at 1.1810. This will be a good moment to partially lock in profit. The level of 1.1762 will serve as a more distant target. After testing this level, the pair will confirm the continuation of the downtrend. If GBP/USD rises and bears are idle at 1.1915, the situation will turn in favor of the bulls. At the same time, a deeper upward correction is also possible. If this is the case, I would advise you to wait until the price performs a false breakout of the next resistance level of 1.1964. This will create a good entry point for opening short positions considering a downside pullback of the pair. If nothing happens there as well, the price may surge to the upside as stop-loss orders set by speculative sellers will be triggered. If so, open short positions only when the price reaches the level of 1.2018. At this point, you can sell GBP/USD right after a rebound, keeping in mind a possible downside pullback of 30-35 pips within the day.
COT report
The COT (Commitment of Traders) report for July 5 showed a rise in both short and long positions. However, short positions prevailed which led to an increase in the negative delta. Another attempt to buy the pair near yearly lows failed after it became clear that the Bank of England will keep raising the rate to tackle inflation. This policy will further slow down the UK economy and will push it closer to a recession. The cost of living crisis is getting more acute every day, and the recent resignation of UK Prime Minister Boris Johnson is likely to make things worse. There are currently no reasons to buy the pound apart from the fact that it has recently retested yearly lows. The Fed's policy and the pace of monetary tightening in the US provide significant support to the US dollar. Besides, the economic situation in the US is slightly better than in the UK, which is confirmed by the fresh employment data for June. According to the COT report, long positions of the non-commercial group of traders increased by 4,434 to 39,618, while short positions surged by 7,524 to 95,826. As a result, the negative non-commercial net position increased to -56,208 from -53.118. The weekly closing price declined to 1.1965 versus 1.2201.
Indicator signals:
Moving Averages
Trading above the 30 and 50-day moving averages indicates the formation of an upside correction.
Please note that the time period and levels of the moving averages are analyzed only for the H1 chart, which differs from the general definition of the classic daily moving averages on the D1 chart.
Bollinger Bands
In case of an uptrend, the upper band of the indicator at 1.1910 will serve as resistance. If the pair declines, the lower band at the 1.1820 level will act as support
Description of indicators:
• A moving average of a 50-day period determines the current trend by smoothing volatility and noise; marked in yellow on the chart;• A moving average of a 30-day period determines the current trend by smoothing volatility and noise; marked in green on the chart;• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA with a 12-day period; Slow EMA with a 26-day period. SMA with a 9-day period;• Bollinger Bands: 20-day period;• Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements;• Long non-commercial positions represent the total number of long positions opened by non-commercial traders;• Short non-commercial positions represent the total number of short positions opened by non-commercial traders;• The total non-commercial net position is the difference between short and long positions of non-commercial traders.