The GBP/USD pair continues to decline sharply, but the corrective pullback seen over the past few days may end as early as this week, with the new imbalance zone 30 providing strong resistance. Over the past three weeks, the bears have attacked with virtually no resistance from the bulls. I would like to remind you that the rise of the U.S. currency began even before the latest FOMC meeting, from which the market literally demanded tighter monetary policy. Last week, FOMC members Thomas Barkin, John Williams, Susan Collins, and others added fuel to the fire by confirming their intention to continue raising the interest rate due to excessively high inflation. The market has focused on tighter Fed policy and has continued buying the dollar for three consecutive weeks, as if the Fed had promised another five rounds of tightening. Neither technical patterns nor the broader economic backdrop can currently stop the decline. The bears themselves may be the only ones capable of stopping the bears. And the bulls must rely on their own strength to recover.
I would also note that traders are simultaneously expecting the Bank of England to implement the same two rounds of monetary policy tightening as the Fed. Moreover, let me reiterate: the Fed's projections actually point to only one rate hike. Thus, the Bank of England could ultimately tighten policy even more than the Fed, which clearly cannot contribute to the growth of the U.S. currency.
Despite the unfavorable picture for the British pound that has developed in recent weeks, the dollar has also suffered numerous setbacks over the past few months. If it were not for the Fed's decision to raise the interest rate in September and its willingness to tighten policy at least one more time before the end of the year, I would still expect the U.S. currency to decline. I still expect it, but from lower levels. However, the bulls' chances now lie only in a liquidity sweep of the low from July 28 or June 24, as well as in the formation of new bullish patterns, which require a confident rise. The chart clearly shows that most reversals over the past year occurred precisely after liquidity sweeps, so in my view, this is a good opportunity. The bears, meanwhile, have imbalances 29 and 30 at their disposal. Particular attention should be paid to the latter, as it has already effectively been worked off. This means that a new sell signal may form in the coming days.
Are there further prospects for the bears? In my view, there are few, but it should be acknowledged that the dollar remains in a favorable phase for itself. The Fed not only decided to raise rates but also communicated to traders this week that it was prepared to continue tightening. I do not believe that a prolonged decline in GBP/USD is possible on this factor alone, but in recent weeks the market has done nothing but price in the FOMC rate hike. What could prevent it from buying the dollar for several more weeks against the backdrop of tighter Fed monetary policy?
Chart analysis shows that the picture became completely bearish after the liquidity sweep of the May highs. The pound reacted to bearish imbalance 27, which caused a 320-point decline in the price. The target of the decline was imbalance 25, and this pattern was both worked off and broken through. New bearish imbalances 29 and 30 were also formed, supporting the bears.
The economic news background on Tuesday was extremely weak, while the upcoming JOLTS report on the number of job openings in August is unlikely to have a significant impact on traders' sentiment. All the most important information is scheduled for the second half of the week.
The overall information background 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 my expectations. Geopolitical factors caused the market to remember the dollar's safe-haven status for several months, but the conflict has already passed its most acute phase. The future of FOMC monetary policy remains ambiguous, while the market itself continues to expect only tightening, which is the main reason for the bears' positive sentiment. In my view, any rise in the dollar is temporary and random in nature. I would also note that GBP/USD has been trading in a range for an entire year. A range allows for virtually any movements within its boundaries.
News calendar for the United States and the United Kingdom:
On September 30, the economic events calendar contains three entries. The economic background may influence market sentiment in the second half of Wednesday, but the impact is unlikely to be significant.
GBP/USD forecast and trading advice:
The long-term picture for the pound remains bullish. The bears have controlled the initiative in recent weeks, but overall, the range is visible even on the daily chart. The liquidity sweep of the swing low from May 1 allowed a new decline to begin, while the sell signal inside inverted imbalance 27 allowed it to continue. Thus, the pound continues to fall almost freely, and the decline may continue as far as the June lows, from which a liquidity sweep may occur, followed by a reversal in favor of the pound. However, this week the price may react to bearish imbalance 30.
*La presente analisi del mercato ha un carattere esclusivamente informativo e non rappresenta una guida per l`effettuazione di una transazione.
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