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Analysis of GBP/USD on July 26. GBP rises higher

Relevance up to 08:00 2022-07-27 UTC–4

Good afternoon, dear traders! On the 1H chart, the GBP/USD pair has not shown yet a clear-cut trend. After yesterday’s growth, an uptrend corridor appeared, signaling the bullish sentiment. The quotes are likely to rise to the Fibonacci correction level of 523.6% – 1.2146. A drop below this level will trigger the resumption of a downward movement to 1.1933 and then to 1.1684. The economic calendar remains empty for the pound/dollar pair as well as for the euro/dollar pair. The UK is preparing for the last round of voting. The voting process now pits Former Chancellor of the Exchequer Rishi Sunak and Foreign Secretary Lizz Truss to replace Boris Johnson. Yesterday there was a debate between the candidates. The majority assumes that Liz Truss provided more convincing comments. According to several opinion polls, Truss has a higher chance of winning.

However, the pound sterling is now climbing higher because of other reasons. Traders are much more interested in the results of the Fed meeting. The central bank is unlikely to surprise market participants. Besides, they have already priced in a 75 basis point rate hike. Of course, tomorrow, market volatility will be extremely high. It is hard to predict which trajectory the pound sterling will pick following the Fed meeting. The Bank of England will hold a meeting next week. It is unclear whether the BoE will decide to raise the key rate. It means that market sentiment may change several times over the week even though it usually depends on one crucial event. The uptrend corridor will show when the sentiment will turn bearish. The pound sterling seems incapable of starting a long-term steady rally.

On the 4H chart, the pair performed an upward reversal. It was moving up along the downtrend line, indicating that the sentiment remains bearish. A pullback from the downtrend line will trigger a drop to the Fibo level of 161.8% – 1,1709. Only a consolidation above the trend line could enable the pound sterling to begin a long-term rally. The MACD indicator signals a bearish divergence, which may push the pair down.

Commitments of Traders (COT):

The mood of the “Non-commercial” category of traders has become a little less bearish over the past week. The number of Long-contracts decreased by 1,907, while the number of Short ones dropped by 3,746. Thus, the general mood of retail traders remained bearish. The number of Short contracts still exceeds the number of Long ones by several times. Major traders continue to get rid of the pound sterling and their mood has not changed considerably. In my opinion, the pound sterling is likely to resume its decline over the next few weeks. There are some chances of a rise. However, speculators are more interested in a new trend, not a two- or three-day growth after which the price will decline again.

Economic calendar for US and UK:

US- New Home Sales (14:00 UTC).

On Tuesday, the economic calendar for the UK and the US is almost empty. Traders will probably pay zero attention to data on US new home sales. For this reason, fundamental factors will have little impact on the market sentiment.

Outlook for GBP/USD and trading recommendations:

It is better to open new short positions if the price declines below 1.1933 on the 1H chart with a prospect of a further drop to 1.1684. It is recommended to open long positions if the price consolidates above 1.1933 on the 1H chart with the target level of 1.2146. Now, traders can hold these positions open.

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

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