FX.co ★ GBP/USD: plan for the European session on July 28. COT reports. Pound returned to monthly highs, but further growth depends on the Fed's decisions

To open long positions on GBP/USD, you need:

Yesterday, the bulls of the British pound managed to repel the attack of the bears, and they managed to return to monthly highs in the afternoon. In my morning forecast, I paid attention to the levels 1.3811 and 1.3774 and advised you to make decisions from them. Let's take a look at the 5 minute chart and break down the entry points. In the first half of the day, the bears were trying to break through the support at 1.3811, however, there was no reverse test of this level from the bottom up. As a result, the pair quickly falls down on the back of data on retail sales in the UK, however, the bears are hitting support at 1.3774. After several unsuccessful attempts to break below this range, a signal to open long positions is generated. So far, the highest upward rebound was 20 points.

During the US session, a false breakout and a return under the level of 1.3814 resulted in forming a signal to sell the pound, but then a sharp rise in the pair took place, which resulted in removing a number of stop orders, including mine. We did not reach the level of 1.3896, so there were no rebound short positions there.

Today we do not have important fundamental data for the UK and only the report on the house price index from Nationwide will attract attention. It is unlikely that this indicator will seriously affect the pound's position, so you should not remove a large value from it. Much will depend on the results of the Federal Reserve meeting. If Fed Chairman Jerome Powell hints at a cut in the asset repurchase program in the near future, the pressure on the pound will return. In the meantime, the bulls are focused on the resistance at 1.3896, breaking beyond which will open the way to new local highs. A breakthrough and consolidation at this level with its reverse test from top to bottom will push the pound to buy and rise to the area: 1.3937 and 1.3978. The next target will be resistance at 1.4019, where I recommend taking profits. In case the pair falls in the first half of the day, the bulls' attention will move to support at 1.3854. The formation of a false breakout there will be a signal to open new long positions in continuation of the upward trend. If the bulls are not active in the area of 1.3854, it is best to postpone long positions until the 1.3814 low is renewed, slightly above which there are moving averages playing on the side of the bulls. I recommend buying GBP/USD immediately on a rebound only from a low like 1.3774, counting on an upward correction of 25-30 points within the day.

To open short positions on GBP/USD, you need:

The initial task of the bears is to protect the resistance at 1.3896, which is also this month's high. Formation of a false breakout there will most likely return temporary pressure to the pound, which will create the first signal to open short positions in hopes that the pair would fall to the support area of 1.3854. A breakdown of this level will most likely depend on the results of the Federal Reserve meeting, since other important data on the US and Great Britain are not published today. Only the breakout of 1.3854 and the upside test will hit the bulls' stop orders, pushing the pound to the next low of 1.3814, where I recommend taking profits. The next target is still the 1.3774 area. If the bears are not active in the 1.3896 area, I recommend postponing short positions until the next major resistance at 1.3937, or selling GBP/USD immediately after a rebound from 1.3978, counting on a downward correction of 25-30 points within the day.

I recommend for review:

The Commitment of Traders (COT) report for July 20 recorded a slight reduction in long positions and a good rise in short ones. Despite the large fall in the pound, as we can see on the chart, the downward movement was quickly won back at the end of last week, but this report does not take this into account, therefore it seems that the pound was completely under the control of bears, but this is not the case. The panic after the lifting of all quarantine restrictions in the UK and the full opening of the economy occurred at a time when, after all this, a sharp increase in infections with a new strain of coronavirus began in England, and politicians argued with each other about how to respond to this. But then, by the middle of the week, the situation stabilized, and the pound managed to recover all its losses against the US dollar. Traders still expect Bank of England officials to start talking more about plans to cut back on the bond buying program soon. I have repeatedly drawn attention to the fact that traders pay special attention and take an interest in every major fall in GBP/USD downward, as sooner or later the central bank will talk about curtailing support measures for the economy, which will have a positive impact on the British pound and lead to its growth. But as long as there has not been a serious departure from the inflation target in the UK, the Bank of England is unlikely to rush to make changes to 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 declined from 44,686 to 44,223, while short non-commercial positions rose from 36,717 to 47,720. As a result, the non-commercial net position turned negative at -3,496. against 7,969. Last week's closing price fell from 1.3886 to 1.3668

Indicator signals:

Trading is carried out above 30 and 50 moving averages, which indicates the continued growth of the pound 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

If the pair grows, the upper border of the indicator in the area of 1.3937 will act as a resistance. In case the pair falls, support will be provided by the lower border of the indicator in the area of 1.3780.

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.