In the morning review, I turned your attention to 1.1595 and recommended making decisions on the market entry with this level in focus. A breakout and the opposite test of this level downwards gave an excellent buy signal. To my regret, it failed to develop due to the poor UK manufacturing PMI. Factory activity contracted again in August. It was enough for the pound to sink to a new one-year low. However, traders did not rush to buy GBP at such lows.
What is needed to open long positions on GBP/USD
Important economic data are due during the New York session tonight a weekly update on unemployment claims and the ISM manufacturing PMI. In case the PMI goes down like in other major economies, the US dollar might come under pressure. However, it will hardly make tradersrevise the technical picture on GBP/USD. If traders resume selling the sterling after the economic data, the main task for the buyers will be to defend support at 1.1540. The currency pair headed for this support during the European session but missed it a bit. Only a false breakout there will generate a buy signal with the aim of recovering to 1.1595, the level which tried to act as newresistance in the morning. Moving averages are passing a bit higher which is in the sellers' favor. They will cap the bullish momentum.
A breakout and the opposite test of 1.1595 downwards could reinforce the buying pressure andcould open the way toward 1.1650. The more distant target is seen at 1.1714 where I recommend profit-taking. In case GBP/USD falls and the buyers lack activity at 1.1540, which is a realistic scenario, the pound sellers might come across problems. Below this level, I spot the low of 1.1479 from where I recommend opening long positions only on the condition of a false breakout. I would advise buying GBP/USD immediately at a dip off 1.1409, the low of 2020, bearing in mind a 30-35-pip intraday correction.
What is needed to open short positions on GBP/USD
The bears did everything in their power to maintain the downtrend and the pair printed a freshone-year low. Now the perfect scenario will be to protect resistance at 1.1595. The pair might jump to it in case of the weak ISM manufacturing PMI. A false breakout there will be the key to increasing more short positions. The sellers might have an idea for a breakout of the nearest support of 1.1540 which serves as a new one-year low. A breakout and the opposite test of 1.1540 upwards will provide the entry point with short positions as the price is expected to slump to 1.1479 where I recommend profit-taking. The lower target is seen at 1.1409.
In case GBP/USD grows and the bears lack activity at 1.1595, the bulls could grasp the opportunity to enable a correction and even an upward move in early September. If this scenario comes true, I would recommend you don't rush selling the currency pair. Only a false breakout at about 1.1650 will provide a sell signal. We could sell GBP/USD immediately at a bounce off 1.1714 or higher at about 1.1754, bearing in mind a 30-35-pip intraday move.
The COT (Commitment of Traders) report from August 23 logs an increase both in short and long positions. Though long contracts are a bit more numerous, it doesn't influence the current market sentiment. GBP/USD remains under serious pressure in light of the recent remarks by Fed's Chairman Jerome Powell. He confirmed the central bank's commitment to aggressive rate hikes. Before the hawkish statements by the Fed's leader, the sterling had already been badly bruised. Rising inflation expectations and soaring costs of living in the UK do not give traders much roomfor adding more long positions because a series of poor macroeconomic metrics are expected ahead. This data is likely to push the sterling even below the levels it is trading now.
The highlight of the week is certainly the US nonfarm payrolls as the data will be the key to the Federal Reserve's decision on further monetary policy. The sustainable robust hiring with the unemployment rate at historic lows will create extra inflationary pressure in the future. Such prospects will force the Federal Reserve to go ahead with more rate hikes. Such a hawkish policy is putting a strain on risky assets, including the pound sterling. According to the latest COT report,long non-commercial positions rose by 14,699 to 58,783 whereas short non-commercial positions grew by 9,556 to 86,749. It increased the negative value of non-commercial net positions to -27,966 against -33,109 a week ago. GBP/USD closed last week much lower at 1.1822 against 1.2096 in the previous week.
Indicators' signals:
Moving averages The currency pair is trading below the 30 and 50 daily moving averages. It indicates further weakness of the pound sterling.
Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differ from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
If GBP/USD grows, the indicator's upper border at 1.1625 will serve as resistance. Otherwise,if the currency pair falls, the lower border at nearly 1.1540 will serve as support.
Description of indicators
Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked yellow on the chart.
Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked green on the chart.
MACD indicator (Moving Average Convergence/Divergece — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
Bollinger Bands (Bollinger Bands). Period 20
Non-commercial speculative traders, such as individual trades, hedge funds, and large institutions that use the futures market for speculative purposes and met certain requirements.
Long non-commercial positions represent the total long open position of non-commercial traders.
Short non-commercial positions represent the total short open position of non-commercial traders.
Total non-commercial net position is the difference between short and long positions of non-commercial traders.