In my morning forecast, I stressed the significance of the 1.3081 level and advised considering it for trading decisions. Let's review the 5-minute chart and analyze the events that took place. The downward movement and the subsequent false breakout at 1.3081 provided an excellent entry point for long positions, but significant growth did not materialize. After a 25-point upward surge, pressure on the pair resurfaced. A more substantial decline in GBP/USD is possible if trading remains within a sideways range.
To initiate long positions on GBP/USD, the following conditions should be met:
We have only the Empire Manufacturing Index data ahead, which is unlikely to cause significant shifts in the balance of power. Hence, we can anticipate further attempts by bears to establish a downward correction. Nevertheless, from a technical standpoint, I have not revised my outlook. I expect a signal to buy the pound only after a decline and a false breakout around the 1.3081 support level, similar to what I discussed earlier. The target will be around 1.3137, which remained unbroken last Friday. A breakthrough and consolidation above this range will provide an additional buying signal, potentially leading to a movement toward 1.3195. The ultimate target remains the area of 1.3253, where I will take profit.
In the scenario of a decline in GBP/USD during the American session, driven by an anticipated downward correction and the absence of buyers at 1.3081, pressure on the pound will intensify. In such a case, only the defense of the subsequent area at 1.3032, along with a false breakout, will signal an opportunity to open long positions. I plan to buy GBP/USD upon a rebound from 1.2986, targeting a correction of 30-35 points within the day.
To initiate short positions on GBP/USD, the following conditions should be met:
Sellers are actively engaged and continue to target 1.3081. Given the current circumstances where trading remains below 1.3137 and within a sideways range, we can expect further declines in the pair. In the event of an upward movement, confirmation of the presence of significant market players will only occur with a false breakout at 1.3137. A selling signal from this level will trigger a decline and a retest of the intermediate support at 1.3081, which has already demonstrated its significance today and coincides with the location of the moving averages that favor bulls. A breakthrough and a subsequent test from below to above this range will significantly blow buyer positions, propelling GBP/USD towards 1.3032. The ultimate target remains the minimum level of 1.2986, where I will take profit.
The bullish market trend will persist in the scenario of further growth in GBP/USD and the absence of activity at 1.3137 in the second half of the day. In such a case, I will postpone selling until a resistance test at 1.3195. A false breakout at that level will provide an entry point for short positions. If there is no downward movement at that level, I will sell the pound on a rebound from 1.3253, but only with the expectation of a downward correction of 30-35 points within the day.
The July 3 COT (Commitment of Traders) report showed a decrease in both short and long positions. Pound buyers have a good opportunity to continue being more aggressive. The Bank of England is expected to maintain its high-interest rate policy due to significant inflation issues affecting household living standards, despite the pressure and economic challenges. On the other hand, traders are starting to reassess their stance on the dollar, anticipating its weakening in the medium term, regardless of what policymakers say. The nearing of maximum interest rates in the United States influences this. The optimal strategy remains to buy the pound when it declines. According to the latest COT report, short non-commercial positions decreased by 6,192 to 46,196, while long non-commercial positions decreased by 7,921 to 96,461. This resulted in a slight decrease in the non-commercial net position to 50,265 compared to 51,994 the previous week. The weekly price declined to 1.2698 from 1.2735.
Indicator signals:
Moving Averages
Trading occurs around the 30 and 50-day moving averages, which present certain difficulties for buyers.
Note: The author considers the period and prices of moving averages on the H1 hourly chart, which differ from the general definition of classical daily moving averages on the D1 daily chart.
Bollinger Bands
In the event of a decline, the lower boundary of the indicator, around 1.3080, will act as support.
Description of Indicators:
• Moving average (determines the current trend by smoothing volatility and noise). Period 50. Marked in yellow on the chart.
• Moving average (determines the current trend by smoothing volatility and noise). Period 30. Marked in green on the chart.
• MACD Indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). Fast EMA period 12. Slow EMA period 26. SMA period 9.
• Bollinger Bands. Period 20.
• Non-commercial traders - speculators, such as individual traders, hedge funds, and large institutions, using the futures market for speculative purposes and subject to specific requirements.
• Long non-commercial positions represent the total long open positions of non-commercial traders.
• Short non-commercial positions represent the total short open positions of non-commercial traders.
• Non-commercial net position is the difference between non-commercial traders' short and long positions.