In my morning forecast, I highlighted the level of 1.2801 and recommended making entry decisions based on it. Let us look at the 5-minute chart and analyze what happened. The upward movement and a false breakout of this level created a sell signal, leading to a drop of more than 40 pips. The technical picture was reassessed for the second half of the day.
When to open long positions on GBP/USD:
Positive building permits and new housing starts data in the US will definitely put pressure on the pound sterling. Additional pressure is likely to come from speeches of FOMC members John Williams and James Bullard, who are expected to clearly indicate that the rate hike in the US is not over yet. This should cool down the enthusiasm of pound bulls a bit, but we should not forget that the Bank of England's policy meeting is coming up, and they will likely raise interest rates. For this reason, buying the pound on dips looks quite attractive. A false breakout around the nearest support at 1.2737, in teh direction of which the pair is currently heading, will be a good entry point for increasing long positions with a target of 1.2795. The moving averages in that area favor the bears. A breakout and a downward retest of this level will leave no chance for bears, forming an additional buy signal and sending GBP/USD towards the monthly high of 1.2842, which will bring back the uptrend. The most distant target will be the area of 1.2876, where I will take profits.
If GBP/USD declines towards 1.2737 amid lack of activity, which is less likely, pressure on the pound sterling will increase significantly. This will lead to speculation about some significant technical changes before the Bank of England meeting. In such a case, only defending the next area at 1.2683, along with a false breakout, will provide a buy signal. I plan to buy GBP/USD only on a bounce from 1.2625, targeting an intraday correction of 30-35 pips.
When to open short positions on GBP/USD:
Bears have done everything they can and maintained pressure on the pound sterling. As long as the pair remains below 1.2795, further downward correction can be expected. If the pair rises after the release of US data, another false breakout of this level will create a sell signal, leading to a larger sell-off towards 1.2737. A breakthrough and an upward retest of this level will deliver a more serious blow to positions of bulls, intensifying the pressure on GBP/USD and forming a sell signal with a drop to 1.2683. The most distant target remains the low of 1.2625, where I will take profits.
If GBP/USD rises amid a lack of activity at 1.2795, it will be all over for bearish traders. Bulls will regain control of the market, expecting another test of local highs. In such a scenario, I will postpone going short on the pair until the resistance at 1.2842 is tested. A false breakout there will provide an entry point for short positions. If there is no downward movement there, I will sell GBP/USD only on a bounce from 1.2876, targeting an intraday correction of 30-35 pips.
Commitment of Traders (COT) report:
The Commitment of Traders (COT) report for June 13 showed that both long and short positions increased sharply. The pound sterling has risen significantly recently, attracting the attention of bears. However, the aggressive policy of the Bank of England and the latest inflation data in the UK are bringing new bulls into the market, who are expecting further interest rate hikes. The fact that the Federal Reserve has paused its tightening cycle, while the Bank of England has no plans to do so makes GBP quite attractive. The latest COT report states that short non-commercial positions increased by 17,069 to 69,648, while long non-commercial positions jumped by 11,320 to 76,383. The non-commercial net position decreased to 6,736 from 12,454 in the previous week. The weekly price rose to 1.2605 from 1.2434.
Indicator signals:
Moving Averages
Trading is taking place around the 30-day and 50-day moving averages, indicating market uncertainty.
Note: The author considers the period and prices of moving averages on the H1 hourly chart, which differs from the general definition of classical daily moving averages on the D1 daily chart.
Bollinger Bands
If GBP/USD declines, the lower boundary of the indicator around 1.2760 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/Divergence - 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 traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet 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 the short and long positions of non-commercial traders.