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To open long positions on GBP/USD, you need:
Yesterday, the bulls still achieved their goal and got out to the next local highs. Let's see how it was and talk about where it was possible and necessary to buy the pound. In my forecast, I paid attention to the 1.3958 level and recommended making decisions based on it. Weak PMI data did not become a problem for the bulls, as everyone continues to believe in the rapid recovery of the UK economy in the summer. One could clearly see that the bulls managed to go beyond this range on their first attempt, and after the reverse test from top to bottom, an excellent signal to buy the pound was formed. As a result, the upward movement was 40 points, but we did not reach the 1.4007 target level, so we failed to get a signal to sell the pound there.
We expect the Bank of England to announce an important decision on monetary policy today, which may affect the pound's direction. If inflationary risks turn out to be higher, most likely the committee will talk about a possible revision of the bond purchase program and an earlier increase in interest rates. This will lead to a sharp strengthening of the pound. If nothing is revised, the emphasis will shift to forecasts of future economic growth rates, inflation and the labor market. Positive expectations may also strengthen the pound. Therefore, the bulls' main task is to surpass and consolidate above the level of 1.3996. Its reverse test from top to bottom will open a direct path to the 1.4047 area, where I recommend taking profits. The next target will be the 1.4097 high, the test of which will completely cancel out the bear market. Such a large growth can only be counted on if the Bank of England has a very positive assessment of the prospects for growth in interest rates. If the pressure on the pound returns, and the pair falls to the 1.3927 area, then forming a false breakout at this level generates a signal to open long positions in continuation of the pound's growth after the Bank of England meeting. If the bulls are not active around 1.3927 and the pound sharply falls after the Bank of England announces its decision on monetary policy, then it is best to postpone long positions until the 1.3863 low is renewed. It is also possible to buy the pound immediately upon a rebound from the level of 1.3803, counting on 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 1.3996, the test of which may occur after the Bank of England's decision. Forming a false breakout there will be a signal to sell the pound, which will push the pair to support at 1.3927, which they have to fight for. An equally important task is for the bears to surpass and test this level from the bottom up, which will lead to forming an additional entry point into short positions and will then allow GBP/USD to reach lows like 1.3863 and 1.3803, where I recommend taking profits. A negative assessment of the UK economy from the Bank of England can help with the implementation of such a scenario. If the bears are not active in the resistance area of 1.3996, then I recommend postponing short positions until the test of the larger area of 1.4047, or even higher - to the level of 1.4097, where you can open short positions immediately on a rebound, counting on a downward correction of 20-25 points within the day.
The Commitment of Traders (COT) reports for June 15 showed that both long and short positions sharply decreased, however, this did not negatively affect the positive delta, but, on the contrary, even increased it due to a larger reduction in the bears' positions. The data was collected even before the Federal Reserve announced its decision on monetary policy, so I recommend not paying special attention to them, since at the moment the picture is already of a different nature. Good inflation in the UK will continue to create a certain pressure on the Bank of England, but so far there is no reason for panic, as is the case in the US, for the British central bank. This week, the central bank will hold a meeting, where most likely everything will remain unchanged, which may lead to continued pressure on the British pound and it may continue to fall against the US dollar in the short term. Similar statements from representatives of the Bank of England no longer work, so the market will only react to new guidelines for monetary policy, if any. Another important moment for the pound would be the full opening of the UK economy, which is slated for the 20th of this month. The spread of the Indian strain of the coronavirus in the territory creates a number of obstacles to this, which affects the desire of investors to buy the British pound. The best scenario is buying for every good decline in the British pound against the US dollar. The COT report showed that long non-commercial positions fell from 59,238 to 55,203, while short non-commercial positions significantly fell from 31,524 to 23,033. As a result, the non-commercial net position rose from 27,714 to 32,170. Last week's closing price significantly changed and reached 1.4109 against 1.4175.
Indicator signals:
Trading is carried out in the area of 30 and 50 moving averages, which indicates some uncertainty regarding the pair's succeeding direction before the Bank of England meeting.
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
Surpassing the upper border of the indicator in the area of 1.3985 will lead to a new wave of growth for the pound. A breakthrough of the lower border of the indicator around 1.3950 will increase the pressure on the pound.
Description of indicators
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