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GBP/USD 5M Analysis:
Throughout the day, especially during the European trading session, no events could trigger a decline in the British currency. There were no significant events in the UK, and the two important US reports showed "flat" values. Moreover, these reports were released after the pound's decline had already occurred. Therefore, the reasons for the pair's decline on Tuesday should be attributed to events on Thursday, specifically the Bank of England's meeting and Andrew Bailey's speech (if it occurs). Currently, the market may be selling off British currency due to its lack of belief in the regulator's "hawkish" stance. A strong pound rise may be possible if the Bank of England proves otherwise on Thursday.
There were only a few trading signals on Tuesday. During the American trading session, the pair initially bounced off the level of 1.2762 and then broke through it, creating signals for both buying and selling. However, both signals turned out to be false. In the first case, the pair moved in the right direction by 20 pips, so a Stop Loss should have been set to breakeven. In the second case, the price remained below the 1.2762 level until late evening, giving traders enough time and opportunities to exit the trade without losses.
COT Report:
According to the latest report on the British pound, the "Non-commercial" group closed 29.8 thousand contracts for buying and 25.0 thousand contracts for selling. As a result, the net position of non-commercial traders decreased by 4.8 thousand contracts over the week but continues to grow overall. The net position indicator has steadily risen alongside the British pound over the last ten months. We are now approaching a point where the net position has grown too much to expect further growth in the pair. An extended and protracted decline in the pound should begin. COT reports suggest a possibility of a slight strengthening of the British currency, but it becomes increasingly difficult to believe in it with each passing day. Based on what the market continues to buy, it is challenging to say. However, there are currently only a few technical signals for selling.
The British currency has risen 2800 points from its absolute lows reached last year, a significant increase. Continued growth with a strong downward correction would be entirely logical. However, the pair's movements have lacked logic for a long time. The market ignores all data favoring the dollar, showing a one-sided perception of the fundamental background. The "Non-commercial" group currently holds 105.5 thousand contracts for buying and 46.5 thousand for selling. We still view the long-term growth of the British currency with skepticism, but the market continues to buy, and the pair keeps rising.
GBP/USD 1H Analysis:
On the hourly timeframe, the GBP/USD pair resumed its downward movement after a bounce from a critical line, resulting in a new downward trend. This week will bring many significant events, and the reaction to them is unpredictable, which may still cause some growth in the pound. However, the pair's decline should continue since the upward trend line has been breached, the price is below the Ichimoku indicator lines, and the pound remains significantly overbought.
For August 2nd, we identify the following important levels: 1.2598-1.2605, 1.2693, 1.2762, 1.2863, 1.2981-1.2987, 1.3050, 1.3119, 1.3175. The Senkou Span B (1.2969) and Kijun-sen (1.2870) lines can also be sources of signals. Signals may involve "bounces" and "breakouts" of these levels and lines. Setting the Stop Loss level to breakeven after the price moves in the right direction by 20 pips is recommended. The Ichimoku indicator lines may shift during the day, so traders should consider this when determining trading signals. Additional support and resistance levels are also present in the illustration, which can be used for trading profit-taking.
No important events are scheduled in the UK on Wednesday, but as we can see, the market is already preparing for the Bank of England's meeting. In the US, only one labor market report from ADP could be more attractive to traders. Although it might provoke a slight reaction, the pound trades well even without it.
Explanation of illustrations:
Price support and resistance levels - thick red lines around which the movement may end. They are not sources of trading signals.
Kijun-sen and Senkou Span B lines - lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour timeframe. They are strong lines.
Extreme levels - thin red lines from which the price previously bounced. They are sources of trading signals.
Yellow lines - trend lines, channels, and other technical patterns.
Indicator 1 on COT charts - the size of the net position for each category of traders.
Indicator 2 on COT charts - the size of the net position for the "Non-commercial" group.
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