FX.co ★ Outlook for GBP/USD on July 27. COT report. Is the pound preparing to jump?

Analysis of GBP/USD 5M

The GBP/USD pair traded higher on Wednesday. It gradually rose throughout the day, despite the absence of influential economic releases and fundamental news until the evening. Even the report on new home sales from across the ocean did not provoke any market reaction. The dollar sharply fell when the results of the Federal Reserve meeting were announced and also after Fed Chair Jerome Powell's rather hawkish speech, and it continued to fall even overnight on Thursday. Trends are rarely observed during Asian trading sessions. Thus, the pound continues to grow, which can still be considered as an upward correction (considering the pound's decline in the last two weeks). However, with each passing day, the probability of reviving the global uptrend increases. What are the reasons for that? Just as before, there are hardly any reasons.

On the other hand, the trading signals were excellent. During the European trading session, the price rebounded twice from the Kijun-sen line, afterwards it moved upward by about 40 pips. Long positions should have been closed manually before the Fed announced its decision. No other signals were formed during the day. Eventually, the Senkou Span B line was tested and surpassed.

COT report:

According to the latest report, the non-commercial group of traders opened 23,600 long positions and 17,900 short ones. Thus, the net position of non-commercial traders rose by 5,700 positions in a week. It continued to rise. The net position has been steadily growing over the past 10 months as well as the pound sterling. Now, the net position has advanced markedly. This is why the pair will hardly maintain its bullish momentum. I believe that a long and protracted downward movement should begin. COT reports signal a slight growth of the British currency but it will not be able to rise in the long term. There are no drivers for opening new long positions. However, there are no technical signals for short positions yet.

The British currency has already grown by a total of 2,800 pips. Without a downward correction, the continuation of the uptrend will be illogical. The Non-commercial group of traders has opened 135,200 long positions and 71,500 short ones. I remain skeptical about the long-term growth of the pound sterling but speculators continue to buy because the pair is growing.

Analysis of GBP/USD 1H

On the 1H chart, the pound/dollar pair has been rising for several days now. As mentioned earlier, it surpassed the Senkou Span B line, but that was as of Wednesday. As of today, this line moved higher, which means there's still a chance of bringing back the downtrend. If the new value of the upper border of the Ichimoku cloud does not hold, the British pound may start a new bullish phase. Judging for ourselves, there seem to be no significant reasons for that to happen. But that doesn't mean the pair shouldn't be traded and that profits cannot be made from it.

On July 27, traders should pay attention to the following key levels: 1.2598-1.2605, 1.2693, 1.2762, 1.2863, 1.2981-1.2987, 1.3050, 1.3119, 1.3175, 1.3222, 1.3273. The Senkou Span B line (1.2977) and Kijun-sen line (1.2884) can also be sources of signals, e.g. rebounds and breakout of these levels and lines. It is recommended to set the Stop Loss orders at the breakeven level when the price moves in the right direction by 20 pips. The lines of the Ichimoku indicator can move during the day, which should be taken into account when determining trading signals. There are support and resistance levels that can be used to lock in profits.

On Thursday, there are no important reports or events lined up in the UK. The US will release important reports on GDP for the second quarter and orders for durable goods. The GDP report is particularly significant as the forecast for it is quite high. However, even if the report turns out to be positive, the dollar may continue to fall as it did yesterday evening when there were no significant reasons for a decline.

Description of the chart:

Support and resistance levels are thick red lines near which the trend may end. They do not provide trading signals;

The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, plotted to the 1H timeframe from the 4H one. They provide trading signals;

Extreme levels are thin red lines from which the price bounced earlier. They provide trading signals;

Yellow lines are trend lines, trend channels, and any other technical patterns;

Indicator 1 on the COT charts is the net position size for each category of traders;

Indicator 2 on the COT charts is the net position size for the Non-commercial group.