GBP/USD continues to rise, and the move looks entirely justified. As a reminder, the dollar has faced numerous negative factors in recent weeks, including the U.S. Treasury Department's decision to increase purchases of long-term bonds, a weak Nonfarm Payrolls report, a slowdown in the Consumer Price Index, and slower GDP growth. In fact, this is far from a complete list of problems facing the U.S. currency. Therefore, if the dollar continues to decline from current levels, even without a corrective pullback, this would not look unusual. There have been no major news releases this week yet, but tomorrow reports on GDP and durable goods orders will be released. On Friday, the annual Payrolls report and a speech by Kevin Warsh are scheduled. As we can see, there are plenty of risk factors for the dollar. I would prefer the pair to correct toward Imbalance 27 and form a new buy signal, but even such a move may be beyond the bears' capabilities.
Do the bears have any prospects at present? In my view, no. A new buy signal was formed last week, giving traders an opportunity to open new long positions, which are already showing profits of around 100 points. Since June 24, the British pound has formed three buy signals and also provided advance warning of an upcoming markup phase (liquidity sweep). The bears currently have no patterns or signals. For now, they can only rely on a corrective pullback, which could begin after liquidity is taken from the May 1 high. I would also point to the new bullish Imbalance 27, where another buy signal could form. In other words, under the current circumstances, a small corrective pullback would actually be positive, as it could allow traders to enter the market with new positions.
As I have already mentioned, geopolitics is no longer having a positive impact on the dollar, as negotiations between the United States and Iran have effectively stalled. Officially, Tehran is negotiating only with Oman. It remains unclear what these negotiations will lead to in terms of ending the conflict and reopening the Strait of Hormuz. Iran may be able to agree with Oman on conditions for controlling the Strait of Hormuz, but how would that resolve the conflict with the United States and lift the U.S. blockade of the strait? Meanwhile, Donald Trump has decided to impose a second blockade on Iran — a financial one — and to impose sanctions on all countries that support Iran. A new global conflict may be developing, which at best could take the form of a trade or sanctions conflict.
This week, oil is trading slightly above $90 per barrel, but in my view, it will return above $100 in the near future. Today, reports emerged that Donald Trump could lift the economic blockade of Iran if Tehran agrees to lift its blockade of the Strait of Hormuz. However, for now, I regard this information as unconfirmed media speculation. Oil prices declined slightly following the reports, but I do not expect the decline to last.
The chart analysis shows another advance by the bulls. At present, traders have three bullish imbalances (25, 26, and 27) in which long positions can be considered. Naturally, the main focus should be on the latest imbalance, which is also the closest to the current price — Imbalance 27. A liquidity sweep of the May 1 high could trigger a corrective pullback, and this pullback could even extend below Imbalance 27. Therefore, I recommend opening new long positions within Imbalance 27 only after a confirmed signal forms, rather than simply when the price reaches the area of interest. At present, however, the liquidity sweep looks just as unconvincing as the previous one. As a rule, when a liquidity sweep is valid, a sharp move in the opposite direction follows.
The economic news flow on Tuesday was virtually absent, which is clearly reflected in market movements. Only a few reports were released in the United States today, while there were no significant releases in the United Kingdom. The impact of economic data today was negligible.
The overall fundamental backdrop remains such that, in the long term, I see little reason to expect anything other than further dollar weakness. The war between Iran and the United States has not changed this outlook. Geopolitical developments prompted the market to remember the dollar's safe-haven status for several months, but the conflict has already passed its active phase. The chances of FOMC monetary policy tightening have declined significantly in recent weeks, putting pressure on the U.S. currency. Therefore, in my view, any dollar appreciation is temporary and driven by short-term factors. I see no reason for a new bearish advance.
News Calendar for the United States and the United Kingdom:
United States — Core Personal Consumption Expenditures (PCE) Price Index (12:30 UTC).United States — Change in Durable Goods Orders (12:30 UTC).United States — Change in Second-Quarter GDP (12:30 UTC).United States — Change in Personal Income and Spending (12:30 UTC).On August 26, the economic calendar contains four releases. The economic backdrop may influence market sentiment during the second half of the day on Wednesday.
GBP/USD Forecast and Trading Recommendations:
The long-term outlook for the pound remains bullish. Following liquidity sweeps of the two most recent swings and the formation of a series of buy signals, the bulls continue to advance. I currently see no basis for a bearish move, as there are no bearish patterns or signals. The bulls received a buy signal from Imbalance 24, which remains valid. Traders may already consider taking profits based on this signal. A new buy signal was formed within Imbalance 26. The current target for the pound is the January 27 high at 1.3867. A liquidity sweep of the May 1 swing could push the pound somewhat lower, but it is unlikely to disrupt the bullish advance. A bullish signal should also be expected to form within Imbalance 27.