Relevance up to 08:00 2022-07-21 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
Several fairly profitable 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 1.1988 level in my morning forecast and advised making decisions on entering the market from it. A breakthrough and reverse test 1.1988 from top to bottom gave an excellent signal to buy the pound in continuation of the bullish scenario, which resulted in the pair's growth by another 30 points up to the 1.2029 area. The first failed attempt to rise above 1.2029 in the afternoon sent the pound down more than 30 points. Toward the middle of the session, the bears were also actively defending in the area of 1.2029, which led to several more sell signals.
When to go long on GBP/USD:
Traders will focus on UK inflation data today. Rising inflation will not help the British pound, as it will only complicate the Bank of England's task, which is actively fighting against rising prices - and is doing it quite badly so far. An inflationary surge will lead to implementing a scenario for a further increase in interest rates, which will further slow down the growth of the British economy and put pressure on the pound. The optimal and acceptable buying scenario would be a downward correction in the area of the nearest support at 1.2002, formed on the basis of yesterday's results, where moving averages, playing on the bulls' side, are slightly lower. Forming a false breakout there will be an excellent signal to open long positions in order to return to the area of the weekly high of 1.2040. A breakthrough of 1.2040 and a reverse downward test will create a more powerful upward momentum, which will provide a buy signal with a target and update 1.2081. A similar breakthrough of this level will open the prospect of reaching 1.2119, where I recommend taking profits. A more distant target will be the area of 1.2160.
If the GBP/USD falls and there are no bulls at 1.2002, the pressure on the pound will increase, as it will become obvious: the trade has moved to the horizontal channel at 1.1925-1.2040. With this option, I recommend postponing long positions until 1.1965. I advise you to buy there only on a false breakout. You can open longs on GBP/USD immediately for a rebound from 1.1925, or even lower - in the area of 1.1879, counting on correcting 30-35 points within the day.
When to go short on GBP/USD:
Bears coped with their task yesterday and defended the weekly high, preventing the bulls from continuing the pair's upward correction. In case of growth after the UK inflation report is released, the best scenario for opening short positions would be a false breakout in the 1.2040 area, by analogy with what I analyzed above. This will bring back downward pressure on the pair to an important support at 1.2002. Everything will depend on whether the bulls remained there or not. If they are not active and the pair settles below, a reverse test from the bottom up will provide another entry point for selling the pound with a fall to 1.1965, where I recommend partially taking profits. A more distant target will be the area of 1.1925.
In case GBP/USD grows further and the absence of bears at 1.2040 in the first half of the day after the statistics are released, the situation will remain on the bulls' side. In this case, I advise you not to rush into shorts. Only a false breakout in the area of the next resistance at 1.2081 will provide an entry point to short positions, counting on the pair's rebound to the downside. If traders are not active there, another upsurge may occur. With this option, I advise you to postpone shorts to 1.2119, where you can sell GBP/USD immediately for a rebound, based on a rebound of the pair down by 30-35 points within the day.
The Commitment of Traders (COT) report for July 12 logged a decrease in both short and long positions, but the former turned out to be much more, which led to an increase in the negative delta. Another attempt to buy back the annual low again failed, although by the end of the week, traders began to take profits, taking advantage of strong US statistics, which led to a slight correction in the pound, which has been implied for quite some time. The crisis in the cost of living in the UK continues to flare up, and so far the government can do nothing about it. At the same time, the Federal Reserve's policy and its pace of raising interest rates in the US, and the next increase is expected at once by almost 1.0%, provides the dollar with much more support, pushing the pound lower and lower. The COT report indicated that long non-commercial positions decreased by 5,768 to 33,850, while short non-commercial positions decreased by 2,887 to 92,939, which led to an increase in the negative value of the non-commercial net position to -59,089 from level -56 208. The weekly closing price decreased and amounted to 1.1915 against 1.1965.
Trading is conducted above the 30 and 50-day moving averages, which indicates the formation of an upward correction in the pair.
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 1.2030 will act as resistance. If the pair goes down, the lower border of the indicator around 1.1985 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.