Yesterday, the instrument formed only one market entry signal. Let's look at the 5-minute chart and figure out what actually happened. In my morning forecast, I turned your attention to the level of 1.2786 and recommended making decisions with this level in focus. The pair grew, but it did not form a false breakout and test the 1.2786 mark, and afterwards the pair was under pressure again. In the afternoon, safeguarding 1.2722 produced a good buy signal. As a result the pair rose by 20 pips and the pair returned to the area of 1.2722, where everything ended.
For long positions on GBP/USD:
Yesterday, the bulls failed to take advantage of the fact that the calendar was basically empty. Today, sellers might use the absence of significant economic reports in the first half of the day to their advantage. And for this reason, it is best not to rush into long positions. But before this, they need to protect the nearest support at 1.2688, which is the lower band of the sideways channel. A false breakout of this level could form a good entry point for long positions, which may lead to a surge towards the resistance zone of 1.2735, the middle of the channel, which is in line with the bearish moving averages. A breakout and consolidation above this range could set the stage for a bullish market, with the next target at 1.2780. The bulls are constantly facing problems above this area. After a breakout, the pair can move towards the resistance level at 1.2836 where I will be taking profits.
If GBP/USD falls and there are no bulls at 1.2688, the pound will remain under pressure. In this case, only the protection of 1.2656, 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 1.2623, keeping in mind an upward intraday correction of 30-35 pips.
For short positions on GBP/USD:
As for bears, they also have ample opportunities today. Their strategy should be to defend the 1.2735 level and reclaim control over 1.2688. A failure to settle above 1.2735 in the first half of the day, which is in line with the moving averages, will generate a sell signal with a prospect of falling to 1.2688 - the buyers' last hope. A breakout of this level and its upward retest would significantly dent the buyers' positions, offering a chance for a more substantial decline towards 1.2656. The ultimate target for this downtrend would be the 1.2623 low, where I would recommend taking profits. If GBP/USD grows and there is no activity at 1.2725, bulls will regain full control of the pair and may start an upward correction towards 1.2780. Only a false breakout at this level would provide an entry point for going short. If there is no downward movement there, I would sell the pound right on a rebound from 1.2836, hoping for an intraday correction of 30-35 pips.
COT report:
The Commitments of Traders (COT) report for August 1st recorded a decline in both long and short positions. Traders have been closing their positions in anticipation of a crucial meeting of the Bank of England. Interestingly, despite recent decisions by the US Federal Reserve and the European Central Bank, the Bank of England signaled its intention to maintain an aggressive stance in an attempt to combat rising inflation. Notably, the recent COT report does not take into account the changes after the regulator's meeting. Therefore, we can downplay the results of this report. Looking ahead, markets anticipate an important GDP report from the UK which the Bank of England relies on when making decisions. However, the optimal strategy remains to buy the pound on dips. The divergent policies of central banks will continue to influence the prospects of the US dollar, asserting downward pressure on it. The latest COT report indicates that long positions of the non-commercial group of traders have decreased by 13,323 to 92,175, while short positions dipped by 3,890 to 42,613. Consequently, the spread between long and short positions narrowed by 1,308. The weekly closing price dropped to 1.2775 compared to the prior value of 1.2837.
Indicator signals:
Moving Averages
Trading is taking place below the 30-day and 50-day moving averages, indicating that the bears are trying to extend the decline.
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 1.2705 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.