The GBP/USD pair has lost its bullish momentum, but the bullish advance cannot yet be considered complete. In my view, the pound's salvation lies in the hands of the euro. At present, the European currency is still maintaining a bullish bias and has not invalidated its two most recent bullish imbalances. These imbalances could save both the euro and the pound. As I have said before, I see no reason for the bears to launch an advance. Virtually all the most important factors at present are working in favor of the bulls. This week, traders should pay attention to the U.S. inflation report, as well as the ECB meeting, which could also affect the British currency due to its high correlation with the European currency. However, at the beginning of the week, traders are in no hurry to open positions.
Over the past month, the dollar has suffered numerous setbacks, including the U.S. Treasury's decision to increase purchases of long-term bonds, weak monthly Nonfarm Payrolls reports, a weak annual Nonfarm Payrolls report, a slowdown in the Consumer Price Index, slower GDP growth, and lower market expectations for Fed monetary policy tightening. The dollar's only positive factors this week were the Nonfarm Payrolls report (for the first time in a long while) and the ISM Services PMI. In my view, the U.S. dollar could have declined much more sharply than it ultimately did.
Do the bears have any prospects at present? In my view, very few. As we have already established, the information background does not support the U.S. dollar. However, it should not be forgotten that not everything in the market depends solely on the information background. In the long term, the market has been moving within a range for about a year. We have seen three upward waves, and everything suggests that the bulls should continue their advance. However, over the past year, we have been seeing an alternation of three-wave structures or similar patterns. The liquidity sweep of the swing from May 1 could provide a basis for a new bearish leg, which is completely inconsistent with the information background.
Geopolitics is no longer having a favorable effect on the dollar. Negotiations between the United States and Iran have failed once again and are no longer taking place. From time to time, Iran and the United States exchange strikes, threats, and ultimatums, which have no effect in terms of resolving the conflict and ending the war. No one can currently predict how much longer the conflict will continue. And the dollar cannot count on market support every time strikes are exchanged, which are occurring with notable regularity.
Chart analysis shows that the picture changed from bullish to bearish within just a few days based on two completely ambiguous events. The European currency may stop the pound's decline, but at present it is the bears that have two imbalances from which positions can be opened. The pound's decline could end at any moment if the euro fails to overcome its imbalances. Within the euro-pound pair, the European currency has a higher status.
There was no economic information background in the United Kingdom or the United States on Monday, and traders did not make hasty or ill-considered decisions ahead of a new series of important reports and events. This week, these include the ECB meeting with a speech by Christine Lagarde, as well as U.S. inflation data. Next week, the Bank of England and Fed meetings are scheduled.
The overall information background remains such that, in the long term, I cannot expect anything other than a decline in the U.S. dollar; however, this decline appears to be postponed once again for some time. The war between Iran and the United States has not changed my long-term expectations. Geopolitics forced the market to remember the dollar's safe-haven status for several months, but the conflict has already passed its most active phase. The prospects for FOMC monetary policy tightening remain ambiguous, while the market itself is constantly changing its expectations. Thus, in my view, any rise in the dollar is temporary and driven by short-term factors. I see no reason for a large-scale bearish advance.
News Calendar for the United States and the United Kingdom:
United States – ADP Employment Change (12-15 UTC).On September 8, the economic events calendar contains one relatively uninteresting release. The impact of the economic background on market sentiment on Tuesday will be either absent or extremely weak.
GBP/USD Forecast and Trading Tips:
The long-term picture 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 may still continue their advance. Unfortunately, over the past week, the bears have held the initiative, and all recent bullish patterns have been invalidated. The bears now have chart-based grounds for an advance. Only the European currency can save the pound. The liquidity sweep of the swing from May 1 allowed the decline to begin, and a sell signal was formed within the "inverted imbalance" 27. It is difficult to say how long the pound will continue to decline. Two bullish imbalances in EUR/USD could well stop the decline. The fact that the bears did not launch a new attack after the Nonfarm Payrolls report indicates that this report does not change the market's view of the Fed's rate decision in September. Traders still lack confidence in monetary policy tightening next week.