Yesterday, the instrument formed quite a few good market entry signals. Now let's look at the 5-minute chart and try to figure out what actually happened. Previously, I considered entering the market from the level of 1.2681. A decline and false breakout on this mark produced a buy signal. As a result, the pair rose by over 25 pips. A retest of 1.2681 with a breakout and a downward update of 1.2681 produced a sell signal. As a result, the pair fell by 50 pips. Buying from 1.2631 was a good signal and the pair rose by another 40 pips. In the afternoon, defending 1.2681 with a false breakout gave another sell signal, which resulted in a 30 pips decline.
Traders were not surprised after the Bank of England delivered another interest rate hike. But the statements of BoE Governor Andrew Bailey that the policy will remain tight and that rates will be raised despite the problems in the economy had strengthened the pound, or at least did not allow it to fall even lower in the GBP/USD pair. This morning, we are expecting the PMI for the UK construction sector, as well as the speech of Huwe Pill, a member of the Bank of England's MPC, who may comment on yesterday's interest rate decision, giving some good evaluations. All this will have a positive impact on the pound ahead of important US data.
If the pair is under pressure in the first half of the day, I will act based on the nearest support level at 1.2681. A decline and false breakout at this mark will produce a buy signal, which will lead to a breakout to the resistance area at 1.2735, where trading is currently taking place. This is also in line with the bearish moving averages. A breakout and consolidation above this range is a chance for an upward correction and an update of 1.2786. A more distant target will be the 1.2836 level where I recommend locking in profits.
If GBP/USD falls and there are no bulls at 1.2681, the pound will remain under pressure. In this case, only the protection of 1.2623, as well as a false breakout on this mark, will create new entry points into long positions. You could buy GBP/USD at a bounce from 1.2592, keeping in mind an upward intraday correction of 30-35 pips.
For short positions on GBP/USD:The bears retreated yesterday, but we can't talk about their capitulation yet. Perhaps, the labor market data will turn things upside down, but for now the sellers are in control. Good data on the construction sector and speeches of BoE officials may bring back the demand for GBP/USD pair, which will lead to another breakout to the area of 1.2735. An unsuccessful consolidation above this mark will produce a sell signal with the prospect of returning to the 1.2681 low. A breakout and an upward retest of this range will create an entry point for short positions, potentially sending the pair down to 1.2623. A more distant target will be the low of 1.2592, where I will be taking profits.
If GBP/USD grows and there is no activity at 1.2735, the situation will stabilize, and the bulls will get a chance to build a correction to the area of 1.2786. Only a false breakout at this level will give an entry point for short positions. If there is no downward movement there, I will sell the pound immediately on the rebound right from 1.3085, but only in the expectation of the pair correction down by 30-35 pips intraday.
COT report:According to the COT report (Commitment of Traders) for July 25th, there was a decrease in both long and short positions. Traders were closing their positions ahead of the Federal Reserve meeting, as the outcome could have resulted in various scenarios. As a result, there were no significant changes in the market, as the central bank raised rates and also left the possibility open for another aggressive move. However, take note that this report does not yet reflect the new positions of players who returned to the market after the central bank meeting. Most likely, strong data on the US economy shifted the balance towards sellers of the pound and buyers of the US dollar. Buying the pound on dips remains the optimal strategy, as the difference in central bank policies will impact the prospects of the US dollar. According to the latest COT report, non-commercial long positions decreased by 28,771 to 105,498, while non-commercial short positions fell by 25,037 to 46,503. As a result, the spread between long and short positions narrowed by only 163. The weekly price fell to 1.2837 from 1.3049.
Moving Averages
Trading is taking place around the 30-day and 50-day moving averages, indicating a sideways market trend ahead of the release of important macro data.
Note: The period and prices of moving averages are considered by the author on the one-hour chart that differs from the general definition of the classic daily moving averages on the daily chart.
Bollinger Bands
If GBP/USD declines, the indicator's lower border near 1.2650 will serve as support.
Description of indicators:• A moving average of a 50-day period determines the current trend by smoothing volatility and noise; marked in yellow on the chart;
• A moving average of a 30-day period determines the current trend by smoothing volatility and noise; marked in green on the chart;
• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA with a 12-day period; Slow EMA with a 26-day period. SMA with a 9-day period;
• Bollinger Bands: 20-day period;
• 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 represent the total number of long positions opened by non-commercial traders;
• Short non-commercial positions represent the total number of short positions opened by non-commercial traders;
• The non-commercial net position is the difference between short and long positions of non-commercial traders.