The GBP/USD pair has lost its bullish momentum, but the bullish advance cannot yet be considered complete. In my view, the pound's recovery is in the hands of the euro. The European currency is still maintaining a bullish bias at present and has not invalidated its two most recent bullish imbalances. These imbalances could save both the euro and the pound. As I have said before, I see no reason for the bears to launch an advance. Almost all of the most important factors currently favor the bulls. However, the pound has found itself in a rather difficult situation, with two bearish patterns providing resistance from above. At the same time, the European currency has two bullish patterns. Thus, the pound has a higher probability of another decline, while the euro has a higher probability of rising. Since the euro and the pound are very strongly correlated with each other, some of these patterns will be invalidated.
Over the past month, the dollar has suffered numerous setbacks, including the U.S. Treasury's decision to increase its purchases of long-term bonds, 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 tighter Fed monetary policy. The only developments that supported the dollar were the latest Nonfarm Payrolls report (for the first time in a long while) and the ISM Services PMI. In my view, the U.S. dollar could have fallen much more sharply than it did from June 25 onward.
Does the current situation offer any prospects for the bears? In my view, very few. As we have already established, the information background does not support the U.S. dollar. However, it should not be forgotten that not everything in the market depends solely on the news background. From a long-term perspective, the market has been range-bound for about a year. We have seen three waves upward, and everything suggests that the bulls should continue their advance. However, over the past year, we have actually been seeing an alternation of three-wave structures and similar formations. The liquidity sweep of the May 1 swing could become the basis for a new bearish leg that would be completely inconsistent with the fundamental background.
Geopolitics is no longer having a favorable effect on the dollar. 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, but this has no effect on resolving the conflict or ending the war. No one can currently predict how much longer the conflict will continue. And the dollar cannot count on market support every time the two sides exchange strikes, which has been happening with notable regularity.
Chart analysis shows that the picture changed from bullish to bearish in just a few days after the liquidity sweep of the May highs. The European currency may stop the pound's decline, but at present it is the bears who have two imbalances from which positions can be opened. The pound's decline could end at any moment if the euro fails to overcome its imbalances. Within the euro-pound pair, the European currency has a higher status.
There was no economic news background on Tuesday. Thus, the low level of trader activity is easy to explain. There will also be very few important events tomorrow, while the pound has meanwhile returned to imbalance 27. It may react to this pattern and form a sell signal.
The overall fundamental background remains such that, in the long term, I cannot expect anything other than a decline in the U.S. dollar. However, this decline appears to be postponed once again for some time. The war between Iran and the United States has not changed my long-term expectations. Geopolitical developments prompted the market to remember the dollar's safe-haven status for several months, but the conflict has already passed its most active phase. The prospects for tighter FOMC monetary policy remain uncertain, while the market itself is constantly revising its expectations. Thus, in my view, any rise in the dollar is temporary and driven by short-term factors. I see no reason for a large-scale bearish advance.
Economic calendar for the United States and the United Kingdom:
On September 9, the economic calendar contains no noteworthy events. The economic background will have no impact on market sentiment on Wednesday.
GBP/USD forecast and trading advice:
The long-term outlook for the pound remains bullish. After the liquidity sweeps of the two most recent swings and the formation of a series of buy signals, the bulls may still continue their advance. Unfortunately, the bears have controlled the initiative in recent weeks, and all of the latest bullish patterns have been invalidated. The bears now have technical grounds for an advance. Only the euro can save the pound. The liquidity sweep of the May 1 swing allowed the decline to begin, and a sell signal was formed within inverted imbalance 27. It is difficult to say how long the pound will continue to fall. Two bullish imbalances on EUR/USD could well stop the decline. The fact that the bears did not launch a new attack after the Nonfarm Payrolls report suggests that the report did not improve traders' sentiment ahead of the FOMC meeting. Traders still lack confidence that monetary policy will be tightened next week.
