Analysis of GBP/USD 5M

The GBP/USD currency pair traded throughout Tuesday with minimal volatility and exclusively sideways. There was a lack of macroeconomic and fundamental backdrop, and the market is filtering geopolitical events rigorously. In principle, there were no significant geopolitical news messages yesterday. Donald Trump continues to engage in "very good negotiations" with Iran, while Iran is not conducting any negotiations with the US, and the Strait of Hormuz remains blocked. Nothing new here.

In recent weeks, the British currency has been declining, and this movement can still be considered a correction against the preceding growth. Today, the US Federal Reserve meeting will take place, and tomorrow the Bank of England will hold its meeting. There is no doubt that both events will provoke volatility, but the market's reaction could be quite ambiguous. It is worth noting that both central banks are expected with 99% probability to keep key rates unchanged, which means these decisions may have already been priced in.

From here, everything will depend on the tone that traders perceive from Kevin Warsh, the conclusions they draw from his speech, and how expectations regarding future changes in US monetary policy evolve by the end of the year. Simply put, specifics will be few today and tomorrow, and it will rely heavily on market sentiment itself.

From a technical perspective, the British pound has broken the descending trendline and has calmly resumed its decline. Therefore, while the downward trend is disrupted, it remains intact. For trading today, the area of 1.3301-1.3309 can be used as a reference.

On the 5-minute timeframe on Tuesday, three trading signals were formed. The price bounced three times from the area of 1.3301-1.3309 from the bottom, and only once managed to move in the correct direction by at least 15 pips, which was not enough even to set a Stop Loss to break even. Thus, it was physically impossible to gain either profit or loss from such movement.

COT Report

COT reports for the British pound show that non-commercial traders have dominated the market with sales for several months. The net position is negative despite the long-term upward trend being intact. Given the events in the Middle East, it is no surprise that demand for risk currencies remains weak. The war is formally over, but the conflict persists. It is this geopolitical context that may support demand for the US dollar in the near term. However, until a confirmation below the trendline is established, we would not expect a strong decline in the pair.

In the long term, the dollar will continue to weaken due to Donald Trump's policies, as evident on the weekly timeframe (illustration above). The trade war will continue in one form or another for a long time, and Trump's policies are aimed both directly and indirectly at weakening the US currency. The long-term upward trend remains, as indicated by the trendline. The price has recently interacted with this line and rebounded from it. According to the latest COT report (dated July 21), the "Non-commercial" group opened 13,200 BUY contracts and closed 2,500 SELL contracts. Thus, the net position of non-commercial traders increased by 15,500 contracts over the week.

Analysis of GBP/USD 1H

On the hourly timeframe, the GBP/USD pair has returned to a downward trend, for which there are currently no strong reasons to continue. If Tehran and Washington resume negotiations, it would benefit risk currencies, including the euro and the pound. In the long term, both currencies still have a bullish outlook and have already remained in sideways channels for a year. This does not negate the upward trend that began in 2022.

For July 29, we identify the following important levels: 1.3042-1.3050, 1.3096-1.3115, 1.3179-1.3187, 1.3301-1.3309, 1.3369-1.3377, 1.3465-1.3480, 1.3588, 1.3671-1.3681. The Senkou Span B line (1.3448) and the Kijun-sen line (1.3331) may also be sources of signals. It is recommended to set a Stop Loss at breakeven when the price moves 20 pips in the correct direction. The Ichimoku indicator lines may shift throughout the day, which should be taken into account when determining trading signals.

On Wednesday, there are no significant events scheduled in the UK, while there will be a Fed meeting in the US, which will certainly provoke an emotional surge in the market. However, the movements may be completely unpredictable, as we do not know what Kevin Waller will announce and how the market will interpret his words.

Trading Recommendations:

Today, traders may consider short positions targeting 1.1274 if the price settles below the area of 1.1362-1.1368. A new rebound from the area of 1.1362-1.1368 allowed for opening long positions yesterday with targets at 1.1424 and 1.1461.

Explanations for Illustrations:

• Support and resistance levels are indicated by thick red lines, near which the movement may come to an end. These are not sources of trading signals.
• Kijun-sen and Senkou Span B lines are Ichimoku indicator lines transferred to the hourly timeframe from the 4-hour one. They are strong lines.
• Extreme levels are indicated by thin red lines, from which the price has previously bounced. These are sources of trading signals.
• Yellow lines represent trend lines, trend channels, and other technical patterns.
• Indicator 1 on the COT charts shows the size of the net position for each category of traders.