26.08.202617:31 Forex Analysis & Reviews: GBP/USD – Smart Money Analysis: The Pound Remains in a Narrow Range

The GBP/USD pair continues to rise, and this move appears fully justified. As a reminder, the dollar has faced numerous negative factors in recent weeks, including the US Treasury's decision to increase its purchases of long-term bonds, a weak Nonfarm Payrolls report, slowing consumer price inflation, slower GDP growth, and declining market expectations for tighter Fed monetary policy. In fact, this is far from the complete list of problems facing the US currency. Therefore, if the dollar's decline continues from current levels without even a corrective pullback, it would not be surprising. On Friday, the annualized Nonfarm Payrolls report will be released, and Kevin Warsh will deliver a speech. Both events pose risks to the dollar. I would prefer the pair to correct toward imbalance 27 and form a new buy signal, but the bears may not even have enough strength or time for such a move. Over the past four days, the price has remained largely unchanged, which primarily points to weakness among the bears. The bulls are not attacking at the moment, but even under these conditions, the bears are unable to make any progress.

Do the bears have any prospects at present? In my view, no. A buy signal was formed last week, giving traders an opportunity to open new long positions, which are already showing profits of around 100 points. Since June 24, the pound has formed three buy signals and also provided advance warning of an impending markup phase (liquidity sweeps). The bears, meanwhile, currently have no patterns or signals. Their only hope at this point is a corrective pullback, which could begin after liquidity is swept from the May 1 high. I would also note the new bullish imbalance 27, within which another buy signal could form. In other words, under the current circumstances, a small corrective pullback would actually be beneficial, as it could allow the bulls to enter the market with new positions. At present, however, the bears do not even have enough strength to trigger a pullback.

As I have already noted, geopolitics is no longer having a favorable impact on the dollar, as negotiations between the US and Iran have effectively reached an impasse. Officially, Tehran is negotiating only with Oman. It remains unclear what these negotiations will lead to in terms of ending the conflict and reopening the Strait of Hormuz. Iran may be able to agree with Oman on terms for controlling the Strait of Hormuz, but how would that resolve the conflict with the US and end the US blockade of the strait? Meanwhile, Donald Trump has decided to impose a second form of blockade on Iran—a financial one. At the same time, he plans to impose sanctions on all countries that support Iran. A new global conflict may be approaching, which at best would take the form of a trade or sanctions conflict.

This week, oil fell to $87 per barrel, but in my view, it will return above $100 in the near term. Reports emerged that Donald Trump could lift the economic blockade of Iran if Tehran agrees to lift the blockade of the Strait of Hormuz, prompting oil prices to move lower. However, I currently regard this information as little more than a media report without sufficient confirmation.

The chart analysis shows another advance by the bulls. At present, traders have three bullish imbalances (25, 26, and 27) within which long positions can be considered. Naturally, the main focus should be on the latest and nearest imbalance to the current price—27. A liquidity sweep of the May 1 high could trigger a corrective pullback, and this pullback could even extend below imbalance 27. Therefore, I recommend opening new long positions within imbalance 27 only after a confirmed signal forms, rather than simply entering when the price reaches the zone of interest. At present, however, the liquidity sweep also looks as unconvincing as the previous one. Typically, when a liquidity sweep is valid, a sharp move in the opposite direction follows.

The economic backdrop on Wednesday was fairly interesting. In particular, I would highlight the US GDP report. However, the market had already seen the first estimate, while final conclusions will be based on the third estimate. Therefore, the reaction to the most important report of the day was weak and had no significant impact.

The overall fundamental 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 US has not changed this. Geopolitical developments caused the market to focus on the dollar's safe-haven status for several months, but the conflict has already passed its active phase. The probability of tighter FOMC monetary policy has declined substantially in recent weeks, putting pressure on the US currency. Therefore, in my view, any rise in the dollar is temporary and short-lived. I see no reason for a new bearish advance.

News Calendar for the US and UK:

• US – Change in Initial Jobless Claims (12:30 UTC).

The economic calendar for August 27 contains one release. The economic backdrop is expected to have no impact on market sentiment on Thursday.

GBP/USD Forecast and Trading Tips:

The long-term outlook for the pound remains bullish. Following liquidity sweeps of the two most recent swing lows and the formation of a series of buy signals, the bulls continue to advance. I currently see no basis for a bearish move, as there are no bearish patterns or signals. The bulls received a buy signal from imbalance 24, which remains valid. Traders can already consider taking profits on this signal. A new buy signal has formed within imbalance 26. The current target for the pound is the January 27 high at 1.3867. A liquidity sweep of the May 1 swing high could push the pound somewhat lower, but it is unlikely to disrupt the bullish advance. A bullish signal should also be expected to form within imbalance 27.