Yesterday, just one entry signal was made. Let's take a look at the 5-minute chart to get a picture of what happened in the market. Previously, I pointed out several levels and made entry decisions based on them. The pound was feeling some pressure in the first half of the day, but there wasn't enough volatility to produce entry signals. In the second half of the day, only a breakout and a retest of the 1.2871 mark created a sell entry point, resulting in a 25-pip drop in the value of the pound.
When to open long positions on GBP/USD:
The pair is still under pressure, but a rebound may occur after the publication of data on UK retail sales and public net borrowing today. If the figures turn out better than forecast, especially retail sales, it will be direct evidence of continuing inflationary pressure, which indirectly affects the Bank of England's plans. This will also be a positive factor for the British pound. If the data disappoints, I will consider selling at around 1.2852 support, formed at the end of yesterday's session. A false breakout there will provide an entry point for long positions, with potential for a surge towards the nearest resistance at 1.2904, which is in line with the bearish moving averages. A breakout and consolidation above this range will create an additional buy signal targeting 1.2960, offsetting most of yesterday's losses. The most distant target is seen at 1.3032 resistance, where I will take profits.
In case of a decline to 1.2852 and the absence of buyers there, the pound will continue to fall within a downward correction, potentially turning into a full-fledged bearish trend. In that case, only protection of the next area at 1.2803, along with a false breakout there, could signal to open long positions. I will buy GBP/USD on a bounce only from 1.2754, aiming for a 30-35 pip correction intraday.
When to open short positions on GBP/USD:
The bears should protect resistance at 1.2904 today, which is in line with the bearish moving averages. If GBP/USD rises after strong retail sales statistics in the UK, only a false breakout at this level will provide an excellent sell signal with a continuation of the downward correction to a target of 1.2852, exerting more pressure on GBP/USD. A breakout and a retest of this range to the upside will deliver a significant blow to buyers' positions, and GBP/USD will drop to 1.2803. The most distant target remains at a low of 1.2754, where I will take profits.
Suppose GBP/USD goes up and there is no selling activity at 1.2904. In this case, buyers will be able to gradually return to the market, believing that one monthly decline in UK inflation is not enough for the Bank of England to change its aggressive monetary policy stance. In that case, I will postpone selling until a test of resistance at 1.2960. A false breakout there will provide a sell entry point. If the pair does not extend its downward movement from that level afterward, I will sell the pound on a bounce from 1.3032, allowing a downward correction of 30-35 pips intraday.
Commitments of Traders:
The COT report for July 11 logged an increase in both long and short positions. However, the number of buyers exceeded sellers by a factor of two, confirming the ongoing bullish sentiment that has persisted throughout this month. GBP buyers will likely continue acting more aggressively. On the one hand, the Federal Reserve is pleased with the rapid decline in inflation, which reduces the likelihood of more rate hikes. On the other hand, the Bank of England, despite all the economic problems, will continue to keep interest rates high due to serious inflationary issues hurting households. The difference in policies will lead to a stronger pound and a weaker US dollar. The optimal strategy remains to buy the pound on declines. The latest COT report revealed an increase in long non-commercial positions by 15,206, to 111,667 from 96,461, and a rise in short non-commercial positions by 7,408, to 53,604 from 46,196. The non-commercial net position surged to 58,063 from 50,265. The weekly price rose to 1.2932 from 1.2698.
Indicator signals:
Moving averages:
Trading is carried out below the 30-day and 50-day moving averages, which indicates a bearish correction in the market.
Note: The author considers the period and prices of moving averages on the H1 (1-hour) chart that differ from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
Support stands at 1.2850, in line with the lower band.
Indicator description:
Moving average (MA) determines the current trend by smoothing volatility and noise. Period 50. Colored yellow on the chart.
Moving average (MA) determines the current trend by smoothing volatility and noise. Period 30. Colored green on the chart.
Moving Average Convergence/Divergence (MACD). Fast EMA 12. Slow EMA 26. SMA 9.
Bollinger Bands. Period 20
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 are the total long position of non-commercial traders.
Non-commercial short positions are the total short position of non-commercial traders.
Total non-commercial net position is the difference between the short and long positions of non-commercial traders.