Trade review of Thursday:

1H chart of the GBP/USD pair

GBP/USD moved on Thursday in the same direction as EUR/USD. Although the European Central Bank meeting had no direct relation to the pound, the high correlation with the euro caused the pound to fall as well. We cannot say the decline was fully justified. Even though the ECB decision was predictable, it should not be dismissed. Traders also overlooked the ECB's readiness to continue tightening monetary policy. Unfortunately, the market remains focused entirely on the Fed and its policy, firmly believing in a September rate hike. We still doubt that decision, though we concede a hike could occur amid elevated inflation and an improving labor market. The US consumer-price index, to be published today, can help make a final judgment. If inflation prints above forecasts, it will further increase the odds of Fed tightening and support the US dollar. However, we should not forget the Warsh factor — he is unlikely to be eager to tighten.

5M chart of the GBP/USD pair

On the 5-minute TF on Thursday, no trading signals were generated. Despite moderately decent intraday moves, price failed to reach or work out any important levels or zones.

How to trade on Friday:

On the hourly TF, GBP/USD continues a downward corrective trend that may end soon. In our view, sterling should keep rising in the medium term under most scenarios, but for now it remains in correction. On the weekly TF, the move from the lower boundary of the sideways channel toward the upper boundary continues and may not yet be complete. Thus we expect a resumption of the northbound impulse.

On Friday, novice traders may consider short positions targeting 1.3380–1.3386 if price closes below 1.3456–1.3476. Long positions can be opened targeting 1.3587–1.3598 in case of a bounce from 1.3456–1.3476.

On the 5-minute TF, you can trade the levels 1.3259–1.3267, 1.3319–1.3331, 1.3380–1.3386, 1.3456–1.3476, 1.3587–1.3598, 1.3631–1.3641, 1.3695, 1.3741. On Friday, the UK will publish GDP and industrial-production data, but the market may calmly ignore these reports. In the US, the event of the week — the August inflation report — will be released and could strongly affect the Federal Reserve's decision next week.

Key Rules of the Trading System:

1. The strength of a signal is determined by the time it takes to form the signal (rebound or breakout). The less time taken, the stronger the signal.
2. If two or more trades were opened at a certain level based on false signals, all subsequent signals from that level should be ignored.
3. In a range (flat), any pair can generate many false signals or may not produce any at all. Technical levels may be disregarded.
4. On the hourly timeframe, trading signals from the MACD indicator should be acted upon only when volatility is high, and a trend line or trend channel confirms the trend.
5. If two levels are too close together (within 5-20 pips), treat them as a support or resistance area.
6. After moving 15 pips in the right direction, a stop-loss should be set to break even.

What to Look for on the Charts:

Price levels (areas) of support and resistance serve as targets for opening buy or sell trades or as sources of signals.

Red lines indicate channels or trend lines that show the current trend and the preferred trading direction.

The MACD indicator (14,22,3) — the histogram and signal line — is an auxiliary indicator that can also provide signals.

Important speeches and reports (listed in the news calendar) can significantly influence currency pair movements. Therefore, during their release, traders should approach trading with utmost caution, or exit the market to avoid sudden reversals against the preceding move.

Beginner forex traders should remember that not every trade can be profitable. Developing a clear strategy and practicing money management are key to long-term success in trading.