On the hourly chart, GBP/USD continued to trade above the 1.3633–1.3641 level on Friday. Thus, the upward movement may resume at any time toward the next retracement level of 161.8% at 1.3731. Consolidation below the 1.3633–1.3641 level would favor the US dollar and a decline toward the 100.0% Fibonacci level at 1.3556.
The market situation remains bullish. The latest completed downward wave did not break the previous low, while the latest upward wave, which is not yet complete, broke the previous high. Thus, the bulls currently control the market, and their advantage is strengthening each day. The bullish trend can be considered broken only after the low of the latest completed wave is breached, i.e. below 1.3414, or after two downward waves form.
The fundamental backdrop on Friday did not support further advances by bullish traders. The UK retail sales report showed a 0.5% decline in volumes, the manufacturing PMI remained at 51.5, and only the services PMI increased to 52.8. However, the services PMI alone was not enough to trigger another rise in the pound. In the second half of the day, US PMIs were also released, with mixed results: one index was below market expectations, while the other was above them. Overall, for most of the day, traders could not determine the market's next direction. The market is now focused on FOMC President Kevin Warsh's remarks, Donald Trump's further actions in the war with Iran, and US economic growth data. I would note that last week the US Treasury increased its purchases of long-term bonds, which sharply reduced traders' interest in the dollar, which had already been low. If Kevin Warsh indicates at the end of the week that monetary policy tightening is being postponed, the dollar will once again come under market pressure. I would say that the dollar faces several more tests this week.
On the 4-hour chart, GBP/USD rebounded from the 1.3467–1.3482 support level and rose to the 0.0% retracement level at 1.3657. A rebound from this level would favor the US dollar and a decline toward the 23.6% Fibonacci level at 1.3538. Consolidation above 1.3657 would increase the chances of further gains in the pound. No new developing divergences are currently observed in any of the indicators.
Commitments of Traders (COT) Report:
The sentiment of the "Non-commercial" trader category became slightly less bearish over the latest reporting week. The number of Long positions held by speculators increased by 12,075, while the number of Short positions increased by 10,427. The current gap between Long and Short positions is effectively 77,000 versus 132,000. The gap and the bears' advantage are gradually narrowing, but the bears still retain a substantial advantage. Previously, the bears' dominance was not in question, but this is now changing because the fundamental backdrop has changed.
I still do not believe that the pound is in a bearish trend, but in the near term everything will depend on Trump's trade policy, the monetary policies of the Fed and the Bank of England, as well as the duration, scale, and consequences of the war in the Middle East. In recent months, the market has shifted toward expectations of peace, but negotiations between Iran and the United States failed without really getting started. And there is no guarantee that they will resume in the near future. Meanwhile, FOMC monetary policy is shifting toward a less restrictive stance, which does not add optimism for dollar bulls.
News Calendar for the United States and the United Kingdom:
On August 24, the economic calendar contains no events of particular interest. The economic backdrop will have no impact on market sentiment on Monday.
GBP/USD Forecast and Trading Advice:
Sell positions in the pair are possible today if the price consolidates below the 1.3633–1.3641 level on the hourly chart, with a target of 1.3556. Buy positions are possible after a rebound from the 1.3633–1.3641 level, with a target of 1.3731.
Fibonacci grids are drawn from 1.3557–1.3272 on the hourly chart and from 1.3158–1.3655 on the 4-hour chart.