14.09.202618:44 Forex Analysis & Reviews: GBP/USD – Smart Money Analysis: The British Pound Outperforms the Euro

The GBP/USD pair has lost its bullish momentum, and at the moment the chart structure looks as though the pound will continue to decline. The price reacted to bearish imbalance 27, which allowed traders to open short positions and created new, rather gloomy prospects for the British pound. For some time, I believed that the pound would be saved by the European currency, which had two bullish imbalances capable of stopping the bears' advance on sheer enthusiasm. However, as practice has shown, the British patterns proved to be more important than the European ones. It was precisely at imbalance 27 that the price reacted, and this is now leading to a decline in quotes. Does the news background support the bears? In my opinion, if it does, then only locally. The Fed may indeed raise its interest rate this week, but we should not forget that at present many central banks around the world are, in one way or another, taking a hawkish stance. The Bank of England is no exception. Even if the British regulator does not raise the rate this week, it will raise it at the next meeting, when inflation in Britain accelerates somewhat further.

Over the past month, the dollar has suffered numerous blows of fate, including: the US 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 a tightening of the Fed's monetary policy. The dollar was supported only by the latest Nonfarm Payrolls report (for the first time in a long while) and the ISM Services PMI. Even the latest US inflation report was not favorable for the dollar and did not increase the actual probability of FOMC monetary policy tightening.

Do the bears have prospects at the moment? In my opinion, they are limited, but it should be acknowledged that the dollar is entering a favorable period. If the Fed decides to raise the interest rate, the information background for the dollar will become much more favorable. I do not believe that this would trigger a prolonged decline in the GBP/USD pair. However, the US currency could show some growth—for example, toward imbalance zone 25.

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, none of which has any effect in terms of resolving the conflict and ending the war. No one can currently predict how much longer the conflict will continue. However, if it intensifies and escalates, the dollar could receive an additional supporting factor.

Chart analysis shows that the picture changed from bullish to bearish in just a few days after liquidity was taken from the May highs. The British pound reacted to bearish imbalance 27, which triggered a new decline in quotes. The target of the decline is now imbalance 25, and one or more bearish patterns may form this week. The bulls have completely surrendered the initiative.

There was no economic news background on Monday, which did not prevent the bears from demonstrating much stronger pressure than last week, when they at least had some grounds for doing so. The market is anticipating FOMC monetary policy tightening, which is the main reason behind the strengthening of the US dollar.

The overall information background remains such that, in the long term, I cannot expect anything other than a decline in the dollar. 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 chances of FOMC monetary policy tightening remain ambiguous, while the market itself is expecting tightening, which is the main reason for the current positive sentiment toward the US currency. In my opinion, any rise in the dollar is temporary and random in nature. I would also note the fact that the GBP/USD pair has been trading within a range for an entire year. A range allows traders to expect virtually any movements within its own boundaries. Traders have so far been unable to break out of the range.

Economic Calendar for the United States and the United Kingdom

• United Kingdom – Unemployment Rate (06:00 UTC).
• United Kingdom – Change in Average Hourly Earnings (06:00 UTC).
• United Kingdom – Change in the Number of Unemployed (06:00 UTC).
• United States – Weekly Change in ADP Employment (12:15 UTC).

On September 15, the economic events calendar contains four entries, none of which are important. The key events this week are the meetings of the Federal Reserve and the Bank of England. Everything else is secondary. The influence of the economic background on market sentiment on Tuesday may be weak.

GBP/USD Forecast and Trading Advice

For the British pound, the long-term picture remains bullish. After liquidity was taken from the two most recent swings and a series of buy signals formed, the bulls may still continue their advance. Unfortunately, however, the bears have taken control of the initiative in recent weeks, and all the latest bullish patterns have been invalidated. The liquidity sweep from the swing of May 1 allowed the decline to begin; a sell signal formed inside inverted imbalance 27, and another bearish signal formed in imbalance 27 last week. Thus, traders can now keep their short positions open, and there is room for further declines in both the euro and the pound. The current target for the British pound is the 1.3307–1.3333 level.