GBP/USD: plan for the European session on August 4. COT reports (analysis of yesterday's trade). Be careful with pound purchases

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

It was not possible to achieve a clear signal to enter the market yesterday afternoon, as there were entry points for both sellers and buyers. And if the first sale deal, which I analyzed in detail during the European session, worked out as a great advantage, then everything was not so simple in the afternoon. Let's analyze the deals and see the entry points on the 5-minute chart. A false breakout formed immediately after the update of support 1.3023, which gave us an excellent entry into long positions, but a major growth did not form immediately. After the pair returned to this area, amid the release of data on the US economy, a signal formed to sell the pound after the pair tested the 1.3023 level from the top down, but even here the downward movement did not reach more than 18 points. In this regard, the technical picture did not change, as traders still dragged the pound under the resistance of 1.3100 by the end of the day. Special attention is drawn to data on holders of long and short positions in the futures markets.

The Commitment of Traders (COT) report for July 28 marked another increase in short positions, but long positions were seriously reduced. This suggests that there are more and more bears and also confirms the theory that the pound's strength is only based on the US dollar's weakness and sooner or later, everything will end, which will lead to a sharp decline in the pair, as problems with Brexit and uncertainty about the prospect of economic recovery have not gone away. The COT report indicates that short non-commercial positions increased from the level of 61,310 to the level of 64,738 during the week. Long non-commercial positions decreased from the level of 46,230 to the level of 39,392. As a result, the non-commercial net position increased its negative value to -25,409, against -15,080, which indicates the likelihood of a sharp fall in the pound after the US dollar recovers its strength. As for the current technical picture, buyers of the pound will continue to focus on the resistance of 1.3100, which they need in order to return to maintaining the bullish trend. A return and consolidation at this level forms a good signal to buy the pound. The goal of the movement is to update the previous week's high at 1.3165, as well as to consolidate above it. This scenario will lead to the removal of the bears' stop orders and a larger strengthening of the GBP/USD to the highs of 1.3228 and 1.3265, where I recommend taking profits. In case the pound falls in the first half of the day, it is best not to rush to open long positions, but wait for a false breakout to form in the support area of 1.3012. Buy GBP/USD immediately on the rebound, I recommend doing so only from the low of 1.2949 based on a correction of 30-40 points within the day.

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

Sellers of the pound need to protect the resistance of 1.3100, as it did yesterday, and a false breakout forming there will be the first signal for a possible downward correction of the pair to the support area of 1.3012. An equally important task is to break through and consolidate under this range, which will lead to removing a number of bullish stop orders and a larger decline in GBP/USD to the support area of 1.3949, where I recommend taking profits. If bears are not active in the 1.3100 resistance area, it is best to postpone short positions until the test of last week's high in the 1.3165 area, provided that a false breakout forms there. Or sell the pound immediately on a rebound from the larger resistance of 1.3228, based on a correction of 30-40 points within the day.

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Indicator signals:

Moving averages

Trading is carried out in the area of 30 and 50 moving averages, which indicates market uncertainty with further direction, since the bulls are afraid to buy, and no one is willing to sell the pound yet.

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 breakout of the upper border of the indicator in the area of 1.3100 will lead to a new wave of growth for the pound. In case the pair falls, support will be provided by the lower border of the indicator around 1.3012.

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) Fast EMA period 12. Slow EMA period to 26. SMA period 9
  • Bollinger Bands (Bollinger Bands). Period 20
  • Non-commercial traders are speculators, 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.
  • The total non-commercial net position is the difference between short and long positions of non-commercial traders.
The material has been provided by InstaForex Company - www.instaforex.com