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The GBP/USD pair has lost its bullish momentum, and at present the chart picture looks as though the pound will continue to decline. The price reacted to bearish imbalance 27, which allowed traders to open short positions and opened up new, less optimistic prospects for the pound. However, the chart picture in the foreign exchange market can change rapidly. For example, liquidity could be taken from the low of September 2 today, which would serve as a bullish warning. Tomorrow evening, the Fed meeting will take place. At present, the market cannot predict what decision the U.S. regulator will make, let alone what the dollar's possible reaction to this event will be. Tomorrow morning, the UK inflation report will be released, which could have a fairly strong influence on the Bank of England's decision as early as Thursday. Thus, the pound will not simply be a spectator on the sidelines this week either. Over the next two days, the situation in the foreign exchange market could change several times. The general consensus is that the Bank of England is not expected to tighten monetary policy on Thursday, but at the same time, it is almost guaranteed to decide to raise rates by the end of the year. The August inflation report will either strengthen market expectations of tighter policy or weaken them somewhat. However, the baseline forecast is for one tightening move by the end of 2026.
Over the past month, the dollar has received numerous blows, including the U.S. Treasury's decision to increase the volume of long-term bond buybacks, weak monthly Nonfarm Payrolls reports, a weak annual Nonfarm Payrolls report, a slowdown in the Consumer Price Index, slower GDP growth, and a decline in market expectations for FOMC monetary policy tightening. The only factors that supported the dollar were the latest Nonfarm Payrolls report (for the first time in a long while) and the ISM Services Business Activity Index. Even the latest U.S. inflation report was not favorable for the dollar and did not increase the actual probability of FOMC monetary policy tightening.
Do the bears have any prospects at present? In my view, they have few, but it should be acknowledged that the dollar has entered a favorable period. If the Fed decides to raise the interest rate, the information backdrop for the dollar will become much more favorable. I do not believe that this would trigger a prolonged decline in GBP/USD. In recent weeks, the market has been doing nothing but pricing in an FOMC rate hike. This decision by the U.S. regulator has already been priced in for a long time.
Negotiations between the United States and Iran have failed once again and are no longer taking place. From time to time, Iran and the United States exchange strikes, threats, and ultimatums, which has no effect whatsoever on resolving the conflict or ending the war. No one can currently say how much longer the conflict will continue. However, if it intensifies and escalates, the dollar could receive an additional supportive factor.
Chart analysis shows that the picture changed from bullish to bearish in just a few days following the taking of liquidity from the May highs. The pound reacted to bearish imbalance 27, which triggered a new decline in prices. Imbalance 25 could be the target of the decline, but the possibility of liquidity being taken from the September 2 low should also be taken into account, as this, together with the Bank of England and Fed meetings, could reverse the pair to the upside.
The economic information backdrop on Tuesday did not allow the bears to continue their attacks, as the most important report of the day, concerning UK unemployment, showed a higher figure than traders had expected. The unemployment rate remained unchanged in July, although the market had expected it to rise to 5%. Thus, bearish pressure was weak today.
The overall information backdrop 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 long-term expectations. Geopolitics forced the market to remember the dollar's safe-haven status for several months, but the conflict has already passed its most active phase. The chances of FOMC monetary policy tightening remain ambiguous, while the market itself expects tightening, which is the main reason for the U.S. currency's 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 traders to expect virtually any movement within its boundaries. Traders have so far been unable to break out of the range.
News calendar for the United States and the United Kingdom:
On September 16, the economic events calendar contains five entries, each of which can be considered important, except for the U.S. retail sales report. The impact of the economic backdrop on market sentiment on Wednesday could be strong throughout the day.
GBP/USD Forecast and Trading Tips:
The long-term outlook for the pound remains bullish. After liquidity was taken from the last two swings and a series of buy signals formed, the bulls may still continue their advance. Unfortunately, however, the bears have taken control of the initiative in recent weeks, and all of the latest bullish patterns have been invalidated. The taking of liquidity from the May 1 swing triggered the decline; a sell signal formed within inverted imbalance 27, and another bearish signal formed in imbalance 27 last week. Thus, traders can now keep their short positions open, and there is room for further declines in both the euro and the pound. The current target for the pound is the 1.3307–1.3333 level. However, I would like to note that the outcomes of the Fed and Bank of England meetings, as well as the UK inflation report, could easily reverse traders' sentiment. The pound itself could also take liquidity from the latest swing.
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