The GBP/USD pair found itself between two imbalances — 26 and 27 — on Monday, and the technical picture remained unchanged on Tuesday. At the same time, imbalance 27 cannot be considered invalidated, while imbalance 26 may trigger a price reaction in the near future. The pound's decline on Friday was not unambiguous, but it can nevertheless be explained. What happened has already happened, so we now need to think about where the price may move from its current levels. Today, traders had few reasons for active trading, so the fate of the dollar and the pound will most likely be decided later this week. New data on business activity, the labor market, and unemployment in the United States will help traders determine whether everything is really as good in the American economy as it appeared on Friday. Let me remind you that weakness in the U.S. labor market significantly complicates matters for the Federal Reserve, which, according to Kevin Warsh, is considering the option of tightening monetary policy. If this week's economic data support the U.S. currency, invalidating imbalances 26 and 27 will become considerably easier. In that case, the bears will go on the offensive. Today, I am concerned by the pound's decline, although it is only modest. There were no reasons to sell the pair today so far, and a further decline in the pound could lead to the invalidation of two "bullish" patterns at once, which would be undesirable.
Over the past month, the dollar has suffered numerous blows, including the U.S. Treasury's decision to increase the volume of long-term bond buybacks, weak monthly Nonfarm Payrolls reports, a weak annual Nonfarm Payrolls report, a slowdown in the Consumer Price Index, a slowdown in GDP growth, and a decline in market expectations for tighter monetary policy by the Federal Reserve. Thus, from its current levels, the dollar's decline could resume. However, for this to happen, the bulls need to take a firm stance, while for now they are showing a willingness to retreat again at the most inopportune moment.
Do the bears have prospects at the moment? In my view, no, or very few. As we have already established, the fundamental backdrop does not support the U.S. dollar. However, it should not be forgotten that not everything in the market depends solely on the fundamental backdrop. In the long term, the market has been in a range for about a year. We have seen three upward waves, and everything points to the bulls forming a fifth wave as well. However, over the past year, we have also been observing an alternation of three-wave structures and similar formations. A liquidity sweep of the swing from May 1 could provide a basis for a new "bearish" part.
As I have already said, geopolitics is no longer having a favorable effect on the dollar, as negotiations between the United States and Iran have become completely deadlocked. This is a major loss for the dollar. Officially, Tehran is negotiating only with Oman. It is still 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 on terms for controlling the Strait of Hormuz with Oman, 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. At the same time, he plans to impose sanctions on all countries that support Iran. As of now, Trump's threats have not been implemented, and it is extremely difficult to understand how Washington intends to force China to stop cooperating with Iran. But one fact remains: the conflict is at an impasse.
Technical analysis points to the bulls going on the offensive. At present, traders have three "bullish" imbalances (25, 26, and 27), within which buying opportunities can be considered. The liquidity sweep of the May 1 high triggered a corrective pullback, and this pullback may be completed within imbalances 26 and 27. However, invalidation of these imbalances would give the bears an opportunity to attack as far as imbalance 25, or even lower.
The fundamental backdrop was absent for most of Tuesday. Only in the evening did the ISM and JOLTS reports come out in the United States. We may still see some market movement during the final quarter of the day.
The overall fundamental backdrop remains such that, in the long term, I cannot expect anything other than a decline in the U.S. currency. The war between Iran and the United States has not changed anything either. Geopolitics forced the market to remember the dollar's safe-haven status for several months, but the conflict has already passed its active phase. Expectations of tighter FOMC monetary policy have declined significantly in recent weeks, putting pressure on the U.S. currency. Thus, in my view, any rise in the dollar is temporary and random in nature. I see no reason for a new bearish offensive.
Economic Calendar for the United States and the United Kingdom:
United States — ADP Employment Change (12:00–15:00 UTC).On September 2, the economic calendar contains one secondary item. The impact of the economic backdrop on market sentiment on Wednesday will be extremely weak or nonexistent.
GBP/USD Forecast and Trading Advice:
The long-term picture for the pound remains "bullish." After liquidity sweeps of the two most recent swings and the formation of a series of buy signals, the bulls may continue their advance. Unfortunately, the bears have controlled the initiative over the past week, and it will take only a little more for the "bullish" patterns to be invalidated. In that case, the bears will go on the offensive. I do not yet see grounds for a bearish attack, but a "bearish" imbalance was formed on August 26. The liquidity sweep of the swing from May 1 pushed the pound slightly lower, but so far it has not broken the "bullish" structure. We should now expect the formation of a "bullish" signal within imbalances 27 and 26, or alternatively, their invalidation and a shift to a bearish offensive.