To open long positions on GBP/USD, you need:
The bears' attempt to put pressure on the pair yesterday only led to an overall increase in long positions against the backdrop of a downward correction. Good longs in the support area at 1.3840 formed the lower border of the new ascending channel and maintained the bullish momentum, capable of breaking the next upper border of the wider horizontal channel at 1.3906, in which the pound has been in recently.
Before examining the technical picture of the pound, let's take a look at what happened in the futures market. The COT reports (Commitment of Traders) for July 6 showed that both long and short positions have increased, which resulted in a growth in the net position. Despite the weak fundamental data on the growth rate of UK GDP in May this year, the pound continues to be in demand after the correction that was observed during the June meeting of the US Federal Reserve. Traders are showing particular interest now after the major downward movement in GBP/USD, and the May data is not an obstacle to building up long positions, as everyone expects more robust economic growth in the summer, even despite the Indian strain of the coronavirus. However, the pound's growth may be limited not only due to a sharp increase in the incidence in the summer, but the fact that the British central bank will not rush to change the program for buying bonds is also a deterrent to the upward trend. Until serious inflationary pressures are noticed in the UK, the Bank of England is unlikely to rush to change its policy. Despite this, the best scenario is to buy the pound for every good decline against the US dollar. The COT report indicated that long non-commercial positions rose from 51,596 to 57,232, while short non-commercial positions increased from 33,873 to 35,329. As a result, the non-commercial net position increased from 17,723 to 21,903. Last week's closing price decreased and reached 1.3853 against 1.3878.
Today we expect to receive the Financial Stability Report from the Bank of England, which may strengthen the pound's position, which will allow it to get out of the wide horizontal channel, in which it has been in for quite a long period of time. But, before counting on growth, most likely the bulls will have to defend support at 1.3874, to which the pair is now gradually declining. Moving averages, playing on the side of the bulls, also pass there. Forming a false breakout there generates a signal to open long positions in continuation of the upward trend. Such a scenario may return the pair to the 1.3906 area, on the breakthrough of which everything depends. An important challenge is to regain control of this resistance. Only a breakthrough and consolidation at 1.3906, followed by its test from top to bottom, creates another signal to open long positions in order for the pair to recover to 1.3938, where it will be possible to observe how active the bears are. The next target will be the high at 1.3978. If the pressure on the pair returns in the first half of the day, and the bulls will not be able to offer anything in the support area of 1.3874, then in this case, I recommend not to rush into long positions. The optimal scenario would be long positions immediately on a rebound from a larger one in the area of 1.3840, from where one can expect an upward correction of 25-30 points within the day. The next big support comes at 1.3806.
To open short positions on GBP/USD, you need:
The bears need to do something, as such a bull market will very quickly negate all their efforts to form a powerful downward trend. The first task is to regain control over the 1.3874 level. Only a negative market reaction to the BoE's Financial Stability Report can push the pound below 1.3874. Testing it on the reverse side generates a signal to open short positions. In such a scenario, one can expect GBP/USD to return to support at 1.3840 and then to renew the larger low at 1.3806, where I recommend taking profits. If the bears are not that active, then the pair can calmly recover again to the resistance area of 1.3906. Forming a false breakout there will be a signal to sell GBP/USD. I recommend opening short positions in the pound immediately on a rebound only from a larger resistance in the 1.3938 area, or even higher - in the 1.3978 area, counting on a downward correction of 20-25 points within the day.
Indicator signals:
Trading is carried out above 30 and 50 moving averages, which indicates that the pound continues to rise in the short term.
Moving averages
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
A breakthrough of the upper border of the indicator in the area of 1.3910 will lead to a new wave of growth of the pound. In the event of a decline, support will be provided by the lower border of the indicator at 1.3840.
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.
