FX.co ★ Outlook for GBP/USD on August 7. COT report. Sterling corrects, but now aims to fall

Analysis of GBP/USD 5M

On Friday, the pound sterling corrected higher after the release of US data. There were three reports, two of which were simply ignored by the market. The decline in the unemployment rate did not save the US dollar from falling, as the market only considered the NonFarm Payrolls, which came in lower than forecast, and the value of the previous month got revised lower. Therefore, there were grounds for the dollar to fall on Friday. In the UK, there were no important reports or events. The US dollar fell by approximately 105 pips from the daily lows, but if we look at the opening and closing prices of the day, its losses were only 40 pips, and at that moment, they were almost negated. We believe that the pound has no grounds to resume the uptrend.

The trading signals for the pound were almost identical to those for the euro. Traders could use the bounce from the level of 1.2693 to open long positions. Subsequently, the pair broke through the area of 1.2746-1.2762, and it remained above it until the end of the trading session. As a result, the long position could be closed anywhere above the mentioned area, and the profit amounted to at least 70 pips.

COT report:

According to the latest report, the non-commercial group of traders closed 13,300 long positions and 3,800 short ones. Thus, the net position of non-commercial traders fell by almost 10,000 positions in a week. But in general, it is still rising. 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 and not many technical signals for short positions either.

The British currency has already grown by a total of 2,800 pips, from its absolute lows reached last year, which is a significant increase. Without a downward correction, the continuation of the uptrend will be illogical. However, there has been no logic in the pair's movements for quite some time. The market perceives the fundamental background one-sidedly, ignoring any data in favor of the dollar. The Non-commercial group of traders has opened 92,100 long positions and 42,600 short ones. I remain skeptical about the long-term growth of the pound sterling but speculators continue to buy and the pair continues to rise.

Analysis of GBP/USD 1H

On the 1H chart, the pound/dollar pair has started to correct, but has not yet broken the downtrend. Consolidation below the critical line may signal a resumption of the downward movement. We believe that there are no grounds for the sterling's growth, so we expect the decline to resume. Of course, that doesn't mean that the pair will fall every day. Periods of consolidation, flat movements, and corrections are possible.

On August 7, traders should pay attention to the following key levels: 1.2520, 1.2598-1.2605, 1.2693, 1.2762, 1.2863, 1.2981-1.2987, 1.3050. The Senkou Span B (1.2868) and Kijun-sen (1.2734) lines 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 Monday, there are no important events or reports lined up in the UK and the US, except for perhaps Michelle Bowman's speech. However, it's a bit of a stretch to consider this event important. Therefore, we expect calm movements akin to a flat.

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.