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GBP/USD declined into Bullish Imbalance 18, reacted to this pattern, formed a Bullish Engulfing candlestick pattern, returned to Bearish Imbalance 19, and has since been trading within this pattern without showing any intention of leaving it. No reaction has followed from Imbalance 19, so the technical picture continues to support the bullish advance. However, the pattern has not yet been invalidated either.
The pound's rise over the past week and a half was driven by growing market optimism regarding the conclusion of a framework agreement between Iran and the United States. However, this week, the chances of reaching an agreement in the near term have once again declined sharply, while the likelihood of the conflict continuing and negotiations failing has increased significantly. As a result, bears have regained short-term support, which could easily become long-term support given the latest developments coming from the Middle East.
And the news flow has been far from encouraging. This week, Donald Trump and Treasury Secretary Scott Bessent stated that Iran has been holding secret negotiations with Oman regarding control of the Strait of Hormuz and the introduction of transit fees for vessels passing through it. I cannot verify the accuracy of this information, but Scott Bessent threatened Oman with severe sanctions, while Donald Trump threatened military action.
The situation surrounding a resolution of the Middle East conflict is gradually moving forward, yet traders remain concerned that the pendulum could swing back toward escalation at any moment. In fact, they did not have to wait long. This week, the United States carried out two missile strikes against Iranian targets, while Iran responded with a strike on a U.S. military base in Kuwait.
One can only hope that these developments will not bring negotiations to an end and that the agreement—which the parties reportedly have already largely agreed upon—will not be abandoned. So far this week, only pessimistic headlines have emerged.
In my view, the trend remains bullish despite the pair's sharp declines earlier this year. At present, the ceasefire in the Middle East remains fragile, but it is still holding and could even be extended by at least another 60 days if Tehran and Washington sign a framework agreement.
However, the Strait of Hormuz remains under a dual blockade, the nuclear issue remains unresolved, and any assessment of progress in negotiations relies primarily on statements from Donald Trump. The situation continues to fluctuate between improvement and deterioration. For now, the market still retains some confidence that an agreement will eventually be reached, but that confidence is not unlimited, and the latest developments in the Strait of Hormuz may, at the very least, complicate further negotiations.
The current technical picture is as follows. Bullish Imbalance 18 generated a price reaction, while Bearish Imbalance 19 is likely to be invalidated. Therefore, the technical structure fully supports further gains in the pound. The only factor that remains to be monitored closely is geopolitics, allowing traders to exit long positions in a timely manner should negotiations once again reach a deadlock and the framework agreement remain "95% agreed" without being finalized.
The economic news background on Friday was absent. No significant economic or geopolitical developments were reported throughout the day.
In the United States, the overall fundamental backdrop continues to suggest that, from a long-term perspective, little supports a sustained appreciation of the U.S. dollar. The conflict between Iran and the United States has changed very little in that regard. Geopolitical tensions temporarily reminded investors of the dollar's safe-haven status over the past two months, but the broader outlook for the U.S. currency remains challenging.
The U.S. labor market continues to weaken, the economy is moving closer to recession, and the Federal Reserve has little room to tighten monetary policy in 2026. In addition, four major protest movements against Donald Trump have already taken place across the country. Furthermore, Jerome Powell's eventual departure could create additional pressure on the dollar if the FOMC adopts a more dovish stance under Kevin Warsh.
From a purely economic perspective, I see no compelling reasons for a sustained rise in the U.S. dollar.
News Calendar for the United States and the United Kingdom:
The economic calendar for June 1 contains one event that can be considered important. The economic backdrop may influence market sentiment during the second half of Monday's trading session.
GBP/USD Forecast and Trading Recommendations:
The long-term outlook for the pound remains bullish. The Three Drives Pattern warned traders of the beginning of the upward move. Since then, three bullish patterns and three bullish trading signals have formed, all of which traders could have utilized.
Two weeks ago, geopolitical developments disrupted the bulls' previously favorable outlook, yet they managed to retain control and generated a new bullish signal within Bullish Imbalance 18. If geopolitical developments remain supportive, the upward trend is likely to continue.
My target for the pound remains the 2026 high at 1.3867, while the nearest target is 1.3656. At present, there are no grounds for considering a bearish trend. The only bearish imbalance is on the verge of invalidation. Naturally, bearish patterns cannot form within a clearly bullish market structure.
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