Yesterday, the pair formed several good signals to enter the market. Let's analyze what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.2722 as a possible entry point. A breakout and retest of this range generated a buy signal. As a result, the pair rose by 40 pips. During the US session, protecting the new support level at 1.2723 and a false breakout formed a buy signal. As a result, the pair rose by another 30 pips.
For long positions on GBP/USD:
The fact that Federal Reserve policymakers are considering further tightening of monetary policy, as mentioned in the Federal Open Market Committee July meeting Minutes, this could mean that the US dollar will strengthen in the short term. However, buyers of the British pound have been coping with attempts at mounting pressure, as it is clear that after this week's release of UK data, the Bank of England will also aggressively fight inflation by further raising rates. Today, there are no economic reports lined up for the UK, so the pound may edge down in the first half of the day.
For this reason, I'm not in a rush to buy. It would be best to act on a decline from the support level at 1.2688. A false breakout of this level could form a good entry point for long positions, as well as confirm the presence of major buyers, leading to an upward move targeting the resistance at 1.2723. The moving averages in that area limits the pair's potential to rise. A breakout and consolidation above this range could set the stage for a bullish market, with the goal of updating 1.2764 - yesterday's high. The ultimate target remains the area of 1.2812 where I will be locking in profits. If GBP/USD declines and there is no buying activity at 1.2688, the pound will be under pressure. In this case, only the defense of the 1.2654 area and its false breakout would give a signal for opening long positions. I will open long positions immediately on a rebound from the low of 1.2617, keeping in mind a daily correction of 30-35 pips.
For short positions on GBP/USD:
Despite the bulls' attempts to extend the pound's growth on the background of the UK's stubborn inflation, the pair continues to trade within the sideways channel. So I expect new sellers to appear in the area of the nearest resistance level at 1.2723. Unsuccessful consolidation at this level will produce a sell signal with a prospect of falling to 1.2688. A breakout of this level and its upward retest would significantly dent the bulls' positions, offering a chance for a more substantial decline towards the low of 1.2654. The ultimate target is still this month's low at 1.2617 - the bulls' last hope.
If GBP/USD trends upward during the European session and if no selling activity is observed at 1.2723, which is possible, given how stubborn the pound is even as the US dollar firmed across the board, the bulls will not regain control of the market, but they will get a chance to start an upward correction towards 1.2764. 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 1.2812, keeping in mind an intraday correction of 30-35 pips.
COT report:
The Commitments of Traders (COT) report for August 8th recorded a decline in both long and short positions. Traders have been closing their positions ahead of important UK GDP data, realizing that the Bank of England would continue to raise interest rates, no matter the cost. Good data on the British economy allowed the market to maintain balance, preventing a significant sell-off of the British pound last week, which was triggered by another increase in inflation in the US. However, the optimal strategy is to buy the pound on dips, as the difference in the policies of the central banks will affect the prospects of the US dollar, putting pressure on it. The latest COT report indicates that long positions of the non-commercial group of traders have decreased by 8,936 to 93,239, while short positions fell by 6,394 to 36,219. As a result, the spread between long and short positions increased by 185. The weekly closing price dropped to 1.2749 compared to the prior value of 1.2775.
Indicator signals:
Moving Averages
Trading is taking place around the 30-day and 50-day moving averages, indicating a sideways market trend.
Please note that the time period and levels of the moving averages are analyzed only for the H1 chart, which differs from the general definition of the classic daily moving averages on the D1 chart.
Bollinger Bands
If GBP/USD falls, the indicator's lower border near 1.2710 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.