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 1.2102 level in my morning forecast and advised making decisions from it. As a result of the pair's growth in the first half of the day, several false breakouts around 1.2102 led to signals to sell the pound, but as you can see on the chart, there was no particularly large downward movement. You could only see 20 points. After a sharp rise in the pound in the afternoon, the only place where one could see a good downward correction is the level of 1.2251. But the test was missing a few points, so I was forced to skip this entry point.
When to go long on GBP/USD:
The sharp reduction in inflation in the US had a positive impact on the GBP/USD pair, but its growth is more likely due to the weakening of the positions of the US dollar, and not with the demand for risky assets, especially the British pound, whose economy is now heading into recession at a crazy pace, and households are experiencing the most big cost-of-living crisis over the past few decades. Today there are no reports that could harm the bulls' plans, and most likely they will continue to buy it back with any downward correction. If the pair goes down in the first half of the day, the best scenario for buying will be a false breakout in the area of 1.2165, where the moving averages play on the bulls' side. In this case, you can count on a new GBP/USD spurt up to 1.2214 and a breakdown of this level. A test of 1.2214 from top to bottom will testify to forming a new upward trend with an update of a more distant target at 1.2257, where I recommend taking profits.
If the GBP/USD falls and there are no bulls at 1.2165, the pressure on the pound will increase again, which will return some advantage to the bears, retaining a chance to cover the pair's growth from yesterday. In this case, I recommend postponing long positions to 1.2116. I advise you to buy there only on a false breakout. You can open long positions on GBP/USD immediately for a rebound from 1.2068, or even lower - around 1.2037, counting on correcting 30-35 points within the day.
When to go short on GBP/USD:
Bears will obviously be cautious, as it is unlikely that they will be able to quickly block all of yesterday's upward movement. The best option would be short positions on the pound's growth from the resistance of 1.2214, but a false breakout is needed there, which will provide a good entry point with the goal of moving to the nearest support at 1.2165. Considering that there are no statistics in the first half of the day, and that we are waiting for the release of data on producer prices in the US in the second half of the day, which may also decrease, given yesterday's CPI report, it is unlikely to count on a powerful downward movement from the pound. Only a breakthrough and a reverse test from below 1.2165 will provide an entry point for selling with a fall to 1.2116, and the next target will be the area of 1.2068, where I recommend taking profits.
In case GBP/USD grows and no bears at 1.2214, a very important resistance level, bulls will have a great chance of returning to 1.2257. Only a false breakout there can provide an entry point into short positions based on the pair moving down. If traders are not active there as well, a surge up to the high of 1.2300 may occur. There, I advise you to sell GBP/USD immediately for a rebound, based on a rebound of the pair down by 30-35 points within the day.
According to the Commitment of Traders (COT) report from August 2, the number of both short and long positions declined. However, the number of long positions showed a more significant drop, reflecting traders' concern about the current economic situation in the UK and Bank of England's aggressive policy. Last week, the regulator raised the benchmark rate by 0.5 basis points. This was the sharpest rise in the last 27 years. It is obvious that the central bank is ready to affect the economic growth pace, which is rapidly dropping, to cope with the record high inflation. By October of this year, inflation may reach 13.0%, according to official forecasts. Even under the current conditions, traders of the pound should not lose hope since the currency is greatly oversold against the US dollar. If in the near future, the US inflation data surprises investors, the pound/dollar pair may resume rising. The COT report unveiled that the number of long non-commercial positions decreased by 5,301 to 29,305, while the number of short non-commercial positions slid by 2,882 to 85,714, which led to an increase in the negative value of the non-commercial net position to the level of -56,409 from -53,990. The weekly closing price rose to 1.2180 against 1.2043.
Trading is above the 30 and 50-day moving averages, which indicates the pound's succeeding 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.
In case of growth, the area of 1.2260 will act as resistance. In case the pair goes down, the lower border of the indicator around 1.2165 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.