FX.co ★ GBP/USD: plan for European session on July 8. COT report. GBP jumps amid Boris Johnson's resignation

Yesterday, traders received several perfect signals to enter the market. Let us take a look at the 5-minute chart to clear up the market situation. Earlier, I asked you to pay attention to the level of 1.1985 to decide when to enter the market. News about the resignation of Boris Johnson led to purchases of the pound sterling. However, after a rise to 1.1985, the price formed a false breakout, which gave a sell signal. As a result, the currency slumped by 20 pips. However, demand for the British pound recovered, allowing the pair to break 1.1985. In the second part of the day, after an active sell-off, bulls showed high activity near 1.1959, where I recommended to go long. Several false breakouts proved the possibility of a further jump to weekly highs. As a result, the pound/dollar pair added more than 50 pips.

Conditions for opening long positions on GBP/USD:

Boris Johnson's decision to resign came up as a surprise especially after he was recently elected for another term. As a result, traders began buying the pound sterling, hoping that the new government will cope with the cost of living crisis, which is pushing the UK economy into recession. As for fundamental data, today, we will hardly see any report that may negatively affect the currency in the first part of the day. The speech that will be provided by BoE Deputy Governor Woods is unlikely to influence the currency's trend. If the pound/dollar pair drops, formation of a false breakout will give a perfect buy signal with the target at the strong resistance level of 1.2044. Near 1.1985, we see moving averages. This fact may provide traders with another opportunity to form a lower limit of the new correctional range. A breakout and a downward test of 1.2044 will give a buy signal with the target at 1.2083.A similar breakout of this level after the publication of the US labor market data may lead to another long signal with the target at 1.2119, where it is recommended to lock in profits. Next target is located at 1.2160. However, it is too early to talk about such targets since the market is under sellers' control. If the pound/dollar pair falls and buyers fail to protect 1.1985, pressure on the pair will increase. In this case, traders should avoid long positions until the price hits 1.1949. However, it is better to buy from this level only after a false break. It is also possible to go long from 1.1911 or lower – from 1.1877, expecting a rise of 30-35 pips.

Conditions for opening short positions on GBP/USD:

Yesterday, bears lost control over the market since bulls began activity approaching a new yearly high amid the recent news. Today, bears should primarily protect the resistance level of 1.2044. However, to regain control over the market sellers should regain control over the level of 1.1985. If the pound/dollar pair increases in the first part of the day after the BoE's announcement, only a false break of 1.2044 will give the first sell signal with the target at 1.1985. If the pair settles below 1.1985 and shows an upward test, buyers' stop orders will be seriously affected, thus giving an additional sell signal with the target at 1.1949, where traders should partially lock-in profits. Next target is located at 1.1911. If the price tests this level, it is likely to resume falling. If the pound/dollar pair increases and bears fail to protect 1.2044, the market sentiment could become bullish. However, this will happen only in case of weak data on the US labor market. If the prediction comes true, it will be better to avoid sell orders. Only a false break of the next resistance level of 1.2083, will give a sell signal. If sellers fail to be active, the pair may jump from 1.2083, thus affecting sellers' stop orders. It will be possible to go short from 1.12119, expecting a decline of 30-35 pips.

COT report

According to the COT report from June 28, the number of short positions declined, whereas the number of long positions jumped. This is pointing to an attempt to reach a new yearly low after the BoE's decision to increase the key interest rate and remain stuck to an aggressive monetary policy. A jump in inflation recorded in May is forcing the regulator to take aggressive measures. The cost of living crisis in the UK, which continues developing, is affecting the local economy especially during the period of the key interest rate hike. This fact is reducing the attractiveness of the British pound, which is actively declining to the low of 2020. The Fed's policy and the pace of the key interest rate hike are actively supporting the greenback. The COT report unveiled that the number of long non-commercial positions increased by 6,714 to 35,184, while the number of short non-commercial positions decreased by 3,415 to 88,302. However, this did not significantly affect the overall picture of the bear market, but led to a slight decrease in the negative value of the non-commercial net position from -63,247 to -53,118. The weekly closing price decreased to 1.2201 against 1.2295.

Signals of indicators:

Moving Averages

Trading is performed above the 30- and 50-day moving averages, which points to an attempt to continue an upward correction.

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

In case of a rise, the resistance level will be located at 1.2050. If the pair drops, the lower limit of the indicator located at 1.1970 will act as support.

• Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 50. It is marked in yellow on the chart.
• Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 30. It is marked in green on the graph.
• MACD indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). A fast EMA period is 12. A slow EMA period is 26. The SMA period is 9.
• Bollinger Bands. The period is 20.
• Non-profit speculative traders are individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
• Long non-commercial positions is a total number of long positions opened by non-commercial traders.
• Short non-commercial positions is a total number of short positions opened by non-commercial traders.
• The total non-commercial net position is a difference in the number of short and long positions opened by non-commercial traders.