21.07.202108:48 Forex Analysis & Reviews: GBP/USD: plan for the European session on July 21. COT reports. Pound continues to fall. It's too early to talk about catching the low

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

Yesterday, a large number of signals to enter the market were formed for the pound. Let's take a look at the 5 minute chart and figure it out. The instant break of support at 1.3662 did not allow me to form a good entry point for short positions, so I had to miss this signal. After the pair dropped to the support area of 1.3636, a false breakout was formed, which led to creating a good entry point for long positions. As a result, there was an increase of more than 30 points up to resistance 1.3662. Several unsuccessful attempts to settle above this range resulted in creating a signal to open short positions and to the pound's repeated decline to the support area of 1.3636.

This was followed by a revision of the technical picture and a breakdown of the new support at 1.3627. A reverse test of this level from the bottom up resulted in creating a signal to open short positions, after which the pound fell by another 50 points. Long positions could be observed only in the middle of the US session, after the bulls managed to regain control over the level of 1.3600. Testing it from top to bottom formed an entry point into long positions, after which the pound rose by 30 points.

Exchange Rates 21.07.2021 analysis

There are no major UK fundamentals today, and public sector net leverage is unlikely to have a major impact on the pair. In any case, it is still too early to talk about the cessation of pressure on the pound, as well as about feeling for the bottom of the market. I advise you to be careful with long positions. Bulls should try to stop the downward movement and this can be done only by protecting support at 1.3606. Forming a false breakout there generates a signal to open long positions in hopes that GBP/USD would recover to the resistance of 1.3639, above which the moving averages, playing on the side of bears, pass. A breakthrough and consolidation at this level with its reverse test from top to bottom will push the pound to the high of 1.3674, and the next target will be the resistance at 1.3716, where I recommend taking profits. If the bulls are not active in the area of 1.3606, it is best to postpone long positions until the low of 1.3574 is renewed, but even there you can count on buying only if a false breakout is formed. If we do not see a rapid upward movement from 1.3574, I recommend buying GBP/USD immediately on a rebound only from a new low of 1.3531, or even lower - around 1.3480 with the aim of 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 1.3639. The formation of a false breakout there, by analogy with the entry points that I analyzed above, generates a sell signal, which will increase the pressure on the pound and keep the market bearish. In this case, the closest target of bears will be support at 1.3606, below which there is a fairly large number of the bulls' stop orders, expecting to build the lower border of the corrective upward channel. A breakthrough and reverse test of 1.3606 from the bottom up can create a new entry point into short positions. Removing the bulls' stop orders below this level will pull down the pair to a low of 1.3574, and then to a new support at 1.3531, where I recommend taking profits. The next target is the area of 1.3480. If the bears are not active in the 1.3639 area, I recommend postponing short positions until the test of a larger high of 1.3674, or selling GBP/USD immediately after a rebound from 1.3716, counting on a downward correction of 25-30 points within the day.

Exchange Rates 21.07.2021 analysis

The Commitment of Traders (COT) report for July 13 recorded a sharp decline in long positions and a slight increase in short ones. This suggests that US inflation has influenced the sentiment of the bulls in a negative direction. The fact that representatives of the Bank of England have recently been reluctant to talk about plans to cut the bond purchase program once again proves their cautious stance on this issue. The UK government completely canceled all quarantine restrictions on July 19 this year, but according to the latest figures on the incidence in the country of the new Delta coronavirus strain, this won't take long. Undoubtedly, after each major downward movement of GBP/USD, traders show particular interest, 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 it does not severely stray away from the UK inflation target, then 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 57,232 to 44,686, while short non-commercial positions rose from 35,329 to 36,717. As a result, the non-commercial net position decreased to 7,969 from 21,903 The closing price of the last week increased slightly and amounted to 1.3886 against 1.3853.

Indicator signals:

Trading is carried out below 30 and 50 moving averages, which indicates continued pressure on the pound. Better to trade with the trend.

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

A breakthrough of the lower border of the indicator in the area of 1.3600 will increase the pressure of the pound. Surpassing the upper border of the indicator around 1.3640 will lead to a larger upward correction of the pair.

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.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Miroslaw Bawulski,
Analytical expert
InstaForex Group © 2007-2021
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