In my morning forecast, I highlighted the importance of the 1.2842 level and suggested making trading decisions based on it. Let's review the 5-minute chart and analyze what happened there. However, we didn't reach a test of this area, so we couldn't find suitable entry signals.
To initiate long positions on GBP/USD, the following conditions are necessary:
The revised data on the UK manufacturing sector PMI did not significantly support the pound, as the index remained below 50 points, indicating a contraction in activity. In the second half of the day, similar data will be released for the US, which might intensify the pressure on the pair. Hence, I prefer to act after a false breakout occurs around the support at 1.2803, where most of the trading occurs. A weak US ISM manufacturing index and a return to 1.2803 will signal a buying opportunity on GBP/USD, aiming for growth towards the resistance at 1.2842, which we didn't reach in the first half of the day. Slightly above this area, moving averages are playing in favor of sellers. A breakout and test below this range will provide an additional buying signal, strengthening the pound and enabling it to reach a new high at 1.2884. With this level, GBP/USD buyers can expect further growth. If GBP/USD declines and there are no buyers at 1.2803 in the second half of the day, the bearish trend will continue, and the pound's situation will worsen. In that case, I will postpone long positions until 1.2765. Buying will only occur on a false breakout. I will open long positions on GBP/USD immediately upon a rebound from 1.2717, with a 30-35 point correction target within the day.
To initiate short positions on GBP/USD, the following conditions are necessary:
Bears are attempting to break below 1.2803, but consolidating below this range will only be possible after strong data on the US. Certainly, considering the current conditions, a more favorable scenario would be selling from the local resistance at 1.2842, where the moving averages are present, favoring sellers. A false breakout at this level will signal a selling opportunity, with expectations of another decline toward the support at 1.2803. Another good entry point for short positions would be a breakout and reverse test from below upwards at 1.2803, which sellers are trying to achieve. This will pave the way towards 1.2765. The ultimate target will be the minimum at 1.2717, where I will take profit. However, the decline to this level will only occur in the event of very strong US data. If GBP/USD rises and there are no bears at 1.2842 in the second half of the day, buyers will have a chance to return to Friday's highs. In that case, a false breakout around the next resistance at 1.2884 will provide an entry point for short positions. In the absence of activity there, I recommend selling GBP/USD from 1.2923, anticipating a rebound of the pair downwards by 30-35 points within the day.
The COT report (Commitment of Traders) for July 25th showed a decrease in both long and short positions. Traders were closing their positions in anticipation of a significant meeting of the Federal Reserve System, which had the potential to bring any outcome. As a result, there were no major changes in the market, as the regulator raised interest rates, keeping the possibility of further upward movement open. It's important to note that this report still needs to include the new positions of players who re-entered the market after the committee meeting. Undoubtedly, strong data on the American economy tilted the balance in favor of pound sellers and US dollar buyers. Nonetheless, the recommended optimal strategy remains buying the pound during declines, given the impact of differences in central banks' policies on the prospects of the US dollar. The latest COT report mentions that non-commercial long positions decreased by 28,771 to 105,498, while non-commercial short positions fell by 25,037 to 46,503. Consequently, the spread between long and short positions narrowed by only 163. The weekly price dropped to 1.2837 from 1.3049.Indicator Signals:
Moving Averages:
Trading occurs below the 30-day and 50-day moving averages, indicating a further decline in the pair.
Note: The author considers the period and prices of moving averages on the hourly chart (H1), which differ from the general definition of classical daily moving averages on the daily chart (D1).
Bollinger Bands:
In the event of a decline, the lower boundary of the indicator, around 1.2800, will serve as a support level.
Description of Indicators:
• Moving Average (determines the current trend by smoothing out volatility and noise). Period 50. Marked in yellow on the chart.
• Moving Average (determines the current trend by smoothing out volatility and noise). Period 30. Marked in green on the chart.
• MACD Indicator (Moving Average Convergence/Divergence - indicates the 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 meeting specific requirements.
• Non-commercial long positions represent the total long open positions of non-commercial traders.
• Non-commercial short positions represent the total short open positions of non-commercial traders.
• The total non-commercial net position is the difference between non-commercial traders' short and long positions.