GBP/USD – Smart Money Analysis: Further Decline in the Pound and Continued Pressure from Sellers

The GBP/USD pair continues to decline almost freely. Over the past ten days, bullish traders have made only one attempt to resist the bears. The rest of the time, the bears have been attacking with virtually no resistance. I would like to remind you that the US currency's rise began even before the latest FOMC meeting, from which the market expected monetary policy tightening. This week, FOMC officials Thomas Barkin, John Williams, Susan Collins, and others added further support to this trend by confirming their intention to continue raising interest rates due to excessively high inflation. It is interesting why, if inflation in the United States is so high, the Fed did not raise the interest rate during the summer, when virtually none of the Fed governors spoke about the urgent need to tighten policy. Whatever the answer to this question, it no longer matters. The market has focused on the Fed's policy-tightening factor and has continued to steadily buy the dollar for the third consecutive week. Neither chart patterns nor the economic backdrop are currently capable of stopping the decline. Only the bears themselves can stop the bears.

Despite the unfavorable picture for the British pound that has developed in recent weeks, the dollar has also faced numerous setbacks in recent months. If the Fed had not decided to raise the interest rate in September and had not indicated its readiness to tighten policy at least one more time before the end of the year, I would still expect the US currency to decline. I still expect it, but from lower levels. However, today the last bullish imbalance 25 was invalidated, and the bulls' only chance now lies in a liquidity sweep of the low from July 28. The chart clearly shows that most reversals over the past year occurred precisely after liquidity sweeps, so in my view, this is an opportunity. I cannot say that the dollar's rise should not continue, but in my view, the current decline in the pair is not related to economic or geopolitical events.

Do the bears have further prospects? In my view, there are few, but it should be acknowledged that the dollar has entered a favorable period. The Fed not only decided to raise the rate but also communicated its readiness to continue tightening policy. I do not believe that a prolonged decline in GBP/USD is possible based on this factor alone, but in recent weeks the market has done little other than price in the FOMC rate hike. What could prevent it from buying the dollar for several more weeks against the backdrop of the Fed's monetary policy tightening?

Chart analysis shows that the picture became completely bearish after the liquidity sweep of the May highs. The pound also reacted to bearish imbalance No. 27, which triggered a new decline in prices. The decline was targeting imbalance No. 25, and this pattern was completed. A new bearish imbalance No. 29 was also formed, and the bears may subsequently get another opportunity to open short positions. The bulls' chances lie only in a liquidity sweep of the 1.3272 swing low.

The economic backdrop was neutral for the pound on Wednesday, which is precisely why the bears dominated throughout the day. The business activity indices for the services and manufacturing sectors showed opposite results. In the services sector, business activity declined to 51.7 points, while in the manufacturing sector it increased to 52 points. However, as already mentioned, the economic backdrop is currently unable to stop the bears' attacks, regardless of what it is.

The overall information backdrop remains such that, in the long term, I cannot expect anything other than a decline in the US currency. The war between Iran and the United States has not changed my long-term expectations. Geopolitical developments prompted the market to recall the dollar's safe-haven status for several months, but the conflict has already passed its most active phase. The future of FOMC monetary policy remains uncertain, while the market itself continues to anticipate only further tightening, which is the main reason for the bears' positive sentiment. In my view, any rise in the dollar is temporary and driven by short-term factors. I would also note that GBP/USD has been trading within a range for an entire year. A range allows for virtually any price movements within its boundaries. Traders have not yet managed to break out of the range.

The September 24 economic calendar contains two releases, neither of which I consider significant. The impact of the economic backdrop on market sentiment on Thursday will be extremely weak or nonexistent.

The long-term picture for the pound remains bullish. In recent weeks, the bears have taken control of the initiative. A liquidity sweep of the swing low from May 1 triggered the decline; a sell signal formed within bearish imbalance 27, followed by another bearish signal within the same pattern. The price reaction to imbalance 25 prompted traders to close their short positions, but the bullish traders never launched an attack. Thus, the pound continues its almost free fall, which could end as early as today if liquidity is swept from the July low, or it could continue toward the June lows.