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

Yesterday's strong US inflation report caused the British pound to sharply fall against the US dollar, however, the bears did not manage to seriously affect the technical picture of the GBP/USD pair. The bears actively defended the support and 1.3806 and continue to do so at the time of this writing. Let's take a look at the 5 minute chart and talk about what happened. One could clearly see how the pound undergoes a fairly abundant sale for the second consecutive day during the European session, but then it is bought back very quickly. The Bank of England's latest report on financial stability did nothing to help the pound, because the bulls could not even protect the support at 1.3874. A small trade at this level led to a larger decline in the pound by the middle of the day, however, no signals to enter the market were formed.

The British pound collapsed to the support area of 1.3806 following the release of the US inflation report, where a false breakout led to a buy signal followed by a rebound to the upside by 35 points. Failure to settle above the resistance at 1.3840 resulted in creating an entry point for short positions and the pound's fall to support at 1.3806 by the end of the US session.

The UK CPI report for June will be published in the morning. So far, there are no problems with inflation in England, so in the event of a sharp growth in the index, the British pound can seriously increase its positions. The best option for the bulls would be to form a false breakout at 1.3802, which they have been defending for the second consecutive day. Such a scenario generates a signal to open long positions in hopes of a recovery to the resistance of 1.3835, slightly above which the moving averages are, limiting the upward correction. Only a breakthrough of 1.3835 and a downward test of this area can generate a new buy signal for GBP/USD and open a direct road to the 1.3869 high. The next target will be the area of 1.3903, where I recommend taking profits. If the pressure on the GBP/USD increases after we receive the inflation report, and the bulls are not active in the 1.3802 area, then it is best to postpone long positions until the 1.3771 support is renewed. It is possible to buy the pound immediately on a rebound from a larger low of 1.3743, counting on a rebound of 25-30 points within the day.

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

The initial challenge for the bears is to protect the resistance at 1.3835, and the inflation report, in line with economists' forecast, may help in this. Forming a false breakout there will be a sell signal, which will increase the pressure on the pound and preserve the bearish character of the market, which formed after yesterday's report on the US CPI. In this case, the nearest target of the bears will be support at 1.3802. Quite a lot depends on today's breakdown of this level, as the exit below will seriously hit the pound's prospects for further growth. Only a reverse test of the 1.3802 level from the bottom up can result in creating another entry point into short positions for the purpose of pulling down the pair to 1.3771, where I recommend taking profits. The next target will be the low of 1.3743. If the bears are not active in the resistance area of 1.3835, I recommend postponing short positions until the test of a larger high at 1.3869, where you can open short positions immediately on a rebound, counting on a downward correction of 25-30 points within the day. Moving averages, playing on the side of the the bears, are also passing slightly below 1.3869.

The COT reports (Commitment of Traders) for July 6 showed that both long and short positions have increased, which resulted in a growth in the net position. Despite the weak fundamental data on the growth rate of UK GDP in May this year, the pound continues to be in demand after the correction that was observed during the June meeting of the US Federal Reserve. Traders are showing particular interest now after the major downward movement in GBP/USD, and the May data is not an obstacle to building up long positions, as everyone expects more robust economic growth in the summer, even despite the Indian strain of the coronavirus. However, the pound's growth may be limited not only due to a sharp increase in the incidence in the summer, but the fact that the British central bank will not rush to change the program for buying bonds is also a deterrent to the upward trend. Until serious inflationary pressures are noticed in the UK, the Bank of England is unlikely to rush to change 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 rose from 51,596 to 57,232, while short non-commercial positions increased from 33,873 to 35,329. As a result, the non-commercial net position increased from 17,723 to 21,903. Last week's closing price decreased and reached 1.3853 against 1.3878.

Indicator signals:

Trading is conducted below 30 and 50 moving averages, which indicates the likelihood of further decline in the pound.

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

In case the pair falls, the lower border of the indicator in the area of 1.3795 will act as a support. Growth will be limited by the upper level of the indicator around 1.3865.

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.