FX.co ★ GBP/USD: plan for the European session on July 28. COT reports. The pound breaks to new local highs

Several excellent market entry signals were formed yesterday. Let's take a look at the 5-minute chart and see what happened. I paid attention to the 1.2035 level in my morning forecast and advised making decisions from it. A decline and forming a false breakout at this level resulted in creating an excellent entry point into long positions, which resulted in the pound's growth by more than 50 points to the area of 1.2087. There, the bears acted more aggressively, since this is still a weekly high. A false breakout and sell signal resulted in the pair dropping back to 1.2035, allowing another 50 points to be pulled out of the market. Even before the Fed's decision on interest rates, a great buy signal was formed and if you stayed in the market, you could make good money, as the pound flew up by more than 150 points.

When to go long on GBP/USD:

The pound rose after the Federal Reserve's decision to raise interest rates, but since it was quite expected, and the committee did not tell us anything new, the demand for risky assets returned quite quickly. Given that the pound has long been "rubbing" around the weekly high, its breakthrough was not long in coming. This resulted in removal of bears' stops and a more powerful upward momentum, which may continue today. There are no objective data on the UK, which could have a negative impact on market sentiment, in the first half of the day. Therefore, I expect a further spurt of the pair and an update of monthly highs. Of course, the best scenario for buying the pound would be its decline and a false breakout in the nearest support area of 1.2143. In this case, you can count on a new jerk of the pair up to 1.2207. A breakthrough of this level opens the way to the high of 1.2267, which will form a more powerful upward momentum and give a buy signal with the goal of jumping to 1.2329, where I recommend taking profits.

If GBP/USD falls and there are no bulls at 1.2143, pressure on the pound will increase, but the main movement in this case will depend on US GDP data. If this happens, I recommend postponing long positions to 1.2113. I advise you to buy there only on a false breakout. You can open long positions on GBP/USD immediately for a rebound from 1.2081, or even lower - in the area of 1.2031 with the aim of correcting 30-35 points within the day.

When to go short on GBP/USD:

Yesterday, bears expected such a development of the scenario, so following the Fed's decision, they began to quickly leave the market, which provoked a larger increase in the pound. Now it is very important how they will manifest themselves in the region of the monthly high, to which there are literally a few tens of points. Obviously, it will not be so easy for the bulls to break above 1.2207, given that tomorrow they need to close the month. The optimal scenario for opening short positions would be a false breakout around 1.2207 after weak statistics on the Nationwide housing price index in the UK. This will bring back pressure on the pound with the goal of lowering to the nearest support at 1.2143, formed on the basis of yesterday. A breakthrough and reverse test from below 1.2143 will provide an entry point for selling with a fall to 1.2113, where I recommend partially taking profits. A more distant target will be the 1.2081 area, but this is already in the worst case scenario and with very good data on US GDP growth rates in the 2nd quarter of this year.

In case GBP/USD grows and the absence of bears at 1.2207 in the first half of the day, then bulls will be in control of the situation. In this case, I advise you not to rush into shorts positions. Only a false breakout around the new high at 1.2267 will provide an entry point to shorts, counting on the pair's bounce downward. If traders are not active there, another upsurge may occur. With this option, I advise you to postpone shorts to 1.2329, where you can sell GBP/USD immediately for a rebound, based on a rebound of the pair down by 30-35 points within the day.

COT report:

The Commitment of Traders (COT) report for July 19 showed that both short and long positions decreased, but the former turned out to be slightly smaller, which led to a slight decrease in the negative value of the delta. It is clear that the bulls have bought back the yearly lows in the pound and are now trying in every possible way to show that the UK economy is not so bad and that the Bank of England's actions in relation to interest rates make sense. The pound's succeeding growth will depend on the Federal Reserve's decisions taken in the middle of this week. Obviously, the central bank will immediately raise interest rates by 0.75%, which may lead to the strengthening of the dollar, but on the condition that the central bank will continue to adhere to such an aggressive policy. If not, then the chance for the pound's succeeding growth will increase, as the BoE meeting will take place in August, at which interest rates may also be raised. However, it is not rational to expect that the pound bull market will last for a very long time, given the crisis in the cost of living in the UK and the economy gradually sliding into recession. The COT report indicated that long non-commercial positions decreased by 1,907 to 31,943, while short non-commercial positions decreased by 3,746 to 89,193, which led to a decrease in the negative value of the non-commercial net position to -57,250 from the level of -59,089. The weekly closing price increased and amounted to 1.2013 against 1.1915.

I recommend to read:

Indicator signals:

Moving averages

Trading is above the 30 and 50-day moving averages, which indicates the pound's growth.

Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the daily D1 chart.

Bollinger Bands

In case of growth, the area of 1.2240 will act as resistance. If the pair goes down, the lower border of the indicator around 1.2001 will act as support.

Description of indicators

• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.
• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart.
• MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
• Bollinger Bands (Bollinger Bands). Period 20
• Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
• Long non-commercial positions represent the total long open position of non-commercial traders.
• Short non-commercial positions represent the total short open position of non-commercial traders.
• Total non-commercial net position is the difference between short and long positions of non-commercial traders.