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The GBP/USD pair posted a fairly strong advance, which could mark the beginning of a bullish trend. In my view, the U.S. dollar's rally between June 17 and June 24 was inconsistent with the underlying fundamental backdrop. By that time, the geopolitical conflict in the Middle East had already been suspended, even though it had been the primary driver of the dollar's strength throughout 2026. Therefore, seeing the dollar rise first because of the war and then continue rising after the fighting had stopped was, at the very least, unusual.
The U.S. dollar also failed to strengthen last week, despite two new escalations in the Middle East and the fact that negotiations have now been suspended. Donald Trump has already revoked the authorization allowing Iran to sell oil under the peace agreement, while Iran has once again closed the Strait of Hormuz. As a result, the ceasefire and negotiations have effectively come to an end. For now, traders do not believe the conflict will escalate into a full-scale war, as similar situations have occurred several times before, with both sides eventually returning to the negotiating table. In my opinion, the market's lack of reaction to the renewed geopolitical tensions is justified.
It is also worth noting that the market initially expected U.S. inflation to accelerate unless the FOMC intervened. Those concerns later eased as oil prices fell to $70 per barrel. Last week, however, oil climbed back to $80, while the consequences of the renewed Middle East escalation and the blockade of the Strait of Hormuz could trigger another surge in crude prices. If events develop according to the most pessimistic scenario, oil could quickly return to the $100–120 range. In that case, hopes for slowing inflation in either the United States or the eurozone would quickly disappear, forcing the market to revise its expectations regarding future monetary policy at both the Federal Reserve and the European Central Bank.
Technical analysis pointed to potential growth toward the 1.3322 level, and that is exactly what occurred. Price first swept the liquidity below the April 6 low and then below the March 31 low. Therefore, there were solid technical reasons to expect further strength in the pound. Considering that the dollar still lacks convincing drivers for a sustainable long-term uptrend and has already posted an impressive rally in 2026, I believe the bears have limited room for further gains.
In addition, a bullish imbalance 23 formed last week, and the market has already reacted to it twice. As for bearish imbalance 21, it has been invalidated. Therefore, I expect either a continuation of the pound's advance or the emergence of new bullish signals followed by another upward move after a corrective pullback.
At present, the market remains highly cautious about the agreement between Iran and the United States, and recent developments suggest this caution is well justified. Incidents near the Strait of Hormuz continue to occur regularly despite the memorandum signed several weeks ago. Although the Federal Reserve contributed to the dollar's recent rally, I still do not see what could allow the bears to maintain sustained downward pressure on the pound. Can expectations of further FOMC tightening alone really be enough?
There were no notable economic releases on Monday, leaving traders with virtually nothing to analyze. As a result, technical analysis is likely to remain the primary market driver in the near term.
The broader fundamental backdrop still leads me to expect nothing other than long-term weakness in the U.S. dollar. Neither the conflict between Iran and the United States nor the possibility of further Federal Reserve rate hikes in 2026 has changed that view. Geopolitical tensions temporarily reminded the market of the dollar's safe-haven status, but the conflict has either ended or is at least approaching its conclusion.
The Federal Reserve intends to raise interest rates in 2026, which is undoubtedly supportive of the dollar. However, tighter monetary policy will also slow the U.S. economy and weaken the labor market. Moreover, Kevin Warsh was appointed by Donald Trump to lead the FOMC specifically because he was expected to pursue a more accommodative policy than Jerome Powell. I therefore believe that any future Fed tightening will not develop into a prolonged tightening cycle. Consequently, in my opinion, any appreciation of the U.S. dollar is likely to be temporary rather than sustainable.
The July 14 economic calendar includes three scheduled events, two of which are considered significant. As a result, macroeconomic developments are expected to influence market sentiment during the second half of Tuesday's trading session.
The long-term outlook for the pound remains bullish. Following the liquidity sweeps below the last two swing lows, the bulls have an opportunity to regain control of the market.
The British pound could still resume its decline toward the bullish trend invalidation level at 1.3007, but this would require fresh bearish signals. Since bearish imbalance 21 has already been invalidated, that source of bearish confirmation is no longer available.
The bullish case is supported by the two liquidity sweeps as well as bullish imbalance 23. The market has already reacted to imbalance 23, and the next upside targets for the pound are the May 1 and January 27 highs at 1.3656 and 1.3867, respectively.
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