On Friday, traders received several signals to enter the market. Let us take a look at the 5-minute chart to clear up the market situation. Earlier, I asked you to pay attention to the level of 1.2160 to decide when to enter the market. At the beginning of the European session, the pound sterling managed to recover. However, bears did not allow it to go above 1.2160, thus forming a perfect sell signal. In addition, strong data on the US labor market led to a slump in the pound/dollar pair, allowing traders to earn about 130 pips. In the second part of the day, buy orders opened after a false breakout of 1.2031 did not bring a profit. However, a reversal at 1.2001 made traders lock in profits with the income of 60 pips.

Conditions for opening long positions on GBP/USD:

The pound sterling is still following the short-term downward trend formed on August 1. The fact is that last week, bears hit new lows every day. Today, they will hardly do so as the absence of fundamental data may seriously affect the market volatility. If the pair drops in the first part of the day, it will be better to go long after a false breakout around the nearest support level of 1.2048, which was formed during the Asian trade. In this case, the pair may jump to 1.2091. If the price exceeds this level, traders will receive the first signs of an upward correction or at least of stagnation within a sideways channel. A breakout of 1.2091 may allow the pair to reach the high of 1.2145. The next target is located at 1.2211, where traders should lock in profits. If the pound/dollar pair declines and buyers fail to protect 1.2048, pressure on the pound sterling will rise again, thus forcing bulls to leave the market. If it happens, traders should avoid buy orders until the price hits a strong support level of 1.2005 formed last Friday. Buy orders could be opened only after a false breakout. It is also possible to go long just after a bounce of 1.1964 or lower – from 1.1929, expecting a correction of 30-35 pips within the day.

Conditions for opening short positions on GBP/USD:

On Friday, sellers received a bulk of positive information. Today, they should just protect the nearest resistance level of 1.2091, where there are bearish moving averages. A false breakout of this level will put the pound sterling under pressure again, thus pushing it to the nearest support level of 1.2048 formed during the Asian trade. Since today there are no important macroeconomic reports, bears will hardly push the pair below this level. That is why only a breakout and an upward test of 1.2048 will give a sell signal with the target at 1.2005. The next target is located at 1.1964, where it is recommended to lock in profits. If the pound/dollar pair increases and bears fail to protect 1.2091, bulls will have a perfect chance to return to 1.2145. Only a false breakout of 1.2145 will give a sell signal with the expectation of a drop. If bears do not show activity at this level, the pair may start rising to the high of 1.2211. There traders are better to sell the pound/dollar pair just after a rebound, expecting a decline of 30-35 pips within the day.

COT report

According to the COT report from July 26, the number of short positions dropped, whereas the number of long positions surged, reflecting the current market situation. The British pound is in demand. What is more, there is no doubt that the BoE will continue raising the benchmark rate this month. The regulator's aggressive policy has been having a positive influence on the national currency despite some economic problems. Last week, the US Fed decided to hike the key interest rate to combat surging inflation. This action is likely to affect the BoE's decision. Notably, demand for the pound sterling is not as high as it might seem. The pound/dollar pair is gaining in value amid the falling greenback. The fact is that there are rumors that the Fed may loosen its monetary policy this autumn. Even amid this backdrop, the pound sterling is unlikely to go on rising due to the cost of living crisis and economic slowdown. The COT report unveiled that the number of long non-commercial positions increased by 2,663 to 34,606, whereas the number of short non-commercial positions declined by 597 to 88,596. As a result, the negative value of the non-commercial net position decreased to 53,990 from -57,250. The weekly closing price rose to 1.2043 against 1.2013.

Signals of indicators:

Moving Averages

Trading is performed below 30- and 50-day moving averages, which points to the continuation of the downward correction.

Note: The period and prices of moving averages are considered by the author on the one-hour chart that differs from the general definition of the classic daily moving averages on the daily chart.

Bollinger Bands

In case of a rise, the resistance level will be located at 1.2115. If the pair declines, the lower limit of the indicator located at 1.2025 will act as support.

• Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 50. It is marked in yellow on the chart.
• Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 30. It is marked in green on the graph.
• MACD indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). A fast EMA period is 12. A slow EMA period is 26. The SMA period is 9.
• Bollinger Bands. The period is 20.
• Non-profit speculative traders are individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
• Long non-commercial positions are a total number of long positions opened by non-commercial traders.
• Short non-commercial positions are a total number of short positions opened by non-commercial traders.
• The total non-commercial net position is a difference in the number of short and long positions opened by non-commercial traders.