The GBP/USD pair reversed in favor of the pound and posted a fairly strong advance that could mark the beginning of a broader bullish trend. In my view, the U.S. dollar's appreciation between June 17 and June 24 was not supported by the underlying news flow. The geopolitical conflict in the Middle East has come to an end, yet it was the primary driver of the dollar's strength in 2026. Therefore, it seems inconsistent to see the dollar first rally on the outbreak of the conflict and then continue rising after the conflict ended.
The FOMC meeting and the regulator's hawkish stance provided legitimate grounds for buying the dollar, but its rally lasted for nearly two weeks. The FOMC has not yet begun tightening monetary policy, and if inflation starts to slow, it may not do so at all. Kevin Warsh's speech did not provide a clear answer as to whether the Federal Reserve intends to raise interest rates in July or September. The FOMC Chair stated that inflation needs to be reduced but offered no hints regarding future monetary policy changes. U.S. labor market data was weak enough to encourage the bulls to become more aggressive, while prompting the market to question whether the FOMC will tighten policy in the near term.
As a result, Bearish Imbalance 21 has been fully mitigated, and the key question now is whether the current bullish advance has further room to develop. A complete invalidation of Imbalance 21 would signal a break in the local bearish market structure.
From a chart perspective, a move toward 1.3322 was anticipated, and that is exactly what occurred. Price first swept the liquidity below the April 6 low and then below the March 31 low. These liquidity grabs provided solid technical grounds for expecting a recovery in the pound. Given that the U.S. dollar still lacks strong fundamental support for a long-term uptrend—and has already posted an impressive rally in 2026—I believe the bears are unlikely to maintain control much longer.
Last week also saw the formation of Bullish Imbalance 23. Price has already reacted to this zone, posting a solid advance on Monday. Nevertheless, the pound remains trapped between two opposing imbalance zones, leaving the market waiting for a decisive breakout. One of these imbalances will ultimately have to be invalidated. In my opinion, the bullish outlook continues to appear more favorable.
At present, the market remains cautious regarding the agreement between Iran and the United States. However, it can now at least be said that the active phase of the conflict has officially ended. At the same time, incidents near the Strait of Hormuz continue to occur regularly, and no negotiations are currently underway. The Federal Reserve triggered a strong rally in the U.S. dollar, yet I still do not see what could enable the bears to continue driving the market. Can expectations of tighter FOMC policy alone sustain further dollar gains?
The economic calendar on Tuesday was virtually empty. Throughout the day, the market had only the weekly ADP Employment Report to focus on, but traders largely ignored it after receiving a much more comprehensive assessment of the U.S. labor market from last Thursday's Nonfarm Payrolls report.
The broader fundamental backdrop still suggests that, over the long term, I expect nothing other than further weakness in the U.S. dollar. Neither the conflict between Iran and the United States nor the prospect of Federal Reserve rate hikes in 2026 has fundamentally changed that outlook. Geopolitical tensions temporarily reminded investors of the dollar's safe-haven status, but the conflict has either ended or is clearly approaching its conclusion.
The Federal Reserve intends to raise interest rates in 2026, which is certainly supportive of the dollar. However, tighter monetary policy would also slow both the U.S. economy and the labor market. Moreover, Kevin Warsh was appointed by Donald Trump as FOMC Chair with the expectation that he would ultimately pursue a more accommodative monetary policy than Jerome Powell. For this reason, I do not believe any tightening by the Federal Reserve will develop into a prolonged tightening cycle. Consequently, in my opinion, any appreciation of the U.S. dollar is likely to be temporary rather than the beginning of a sustained long-term trend.
United States
On July 8, the economic calendar contains only one secondary event. As a result, the impact of the economic news flow on market sentiment on Wednesday is likely to be minimal or nonexistent.
The long-term outlook for the pound remains bullish. Following liquidity sweeps below the two most recent swing lows, the bulls now have an opportunity to regain control of the market. The pound could still resume its decline toward the bullish trend invalidation level at 1.3007, but this would require new bearish signals.
A sell signal can only emerge within Imbalance 21. Supporting the bullish case are the two completed liquidity sweeps, along with Bullish Imbalance 23. This bullish pattern provides the bulls with greater confidence to continue advancing.
If the market reacts to Imbalance 23, the next upward targets for the pound will be the highs of May 1 and January 27, located at 1.3656 and 1.3867, respectively. If the market instead reacts to Imbalance 21, the downward target will be the 1.3139 low.
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