The GBP/USD currency pair plummeted nearly 300 points last week, but managed to recover slightly on Monday. While this recovery appears negligible, the positions and prospects for the British currency are objectively worse than for the euro. We previously mentioned that the UK's political crisis is a rather dubious reason for the pound's decline. However, it may have amplified the "geopolitical factor," which triggered another strengthening of the US dollar. The British pound depreciated twice as much as the euro last week, and we believe that the reason for such a steep decline should be more convincing than just another political crisis, which has not even ended with the resignation of Prime Minister Keir Starmer and early elections.

What could be the underlying truth? Very few traders looked ahead to this week's calendar last week, and as practice shows, that was a mistake. On Wednesday, the inflation report will be published, a report the market has actively ignored over the past three months, as with most others. However, this time, the UK inflation report may come as a significant surprise with its reading. Traders have grown accustomed to inflation accelerating worldwide, but in the UK, it may slow to 3% in April. This represents the levels seen in January and February, when there was no war in the Middle East. In this case, it would appear that the war in Iran, the blockade of the Strait of Hormuz, and rising oil and fuel prices have not affected prices in the UK. Of course, this is not the case, as energy prices are relatively the same worldwide. This paradox can easily be explained by subsidies.

The British government partially covers the costs of fuel and energy purchases for businesses and entrepreneurs, so they have little incentive to raise prices. Therefore, inflation does not accelerate. Currently, we can only speak about projected values rather than actual ones. However, even if April's inflation turns out to be 3.2-3.3%, it would still be a very low value under current circumstances. The most important factor is the absence of an upward trend in consumer prices. Without sustained inflationary growth, the Bank of England has no need to raise rates.

This assumption explains the pound's more substantial decline last week. The European Central Bank is expected to tighten its policy at the next meeting, while the BoE is not. Thus, the euro is in a more favorable position compared to the British pound. Will the decline of the British currency continue? We believe it will not, provided the war in the Middle East does not resume soon. The market has already priced in the failure of negotiations between Tehran and Washington, but the most pessimistic scenario has yet to unfold. There are currently no reasons to further purchase the US dollar. On Monday, the macroeconomic and fundamental backdrop was absent, so the recovery of the British currency can be seen as a positive signal. The upward trend of 2025 is still relevant.

The average volatility of the GBP/USD currency pair over the last 5 trading days is 102 pips. For the pound/dollar pair, this value is considered "average." On Tuesday, May 19, we expect the pair to trade within a range between 1.3287 and 1.3491. The upper linear regression channel has turned upward, indicating a potential recovery in the upward trend. The CCI indicator has not generated signals recently.

Nearest support levels:

S1 – 1.3367

S2 – 1.3306

S3 – 1.3245

Nearest resistance levels:

R1 – 1.3428

R2 – 1.3489

R3 – 1.3550

Trading Recommendations:

The GBP/USD pair has sharply declined, so the upward trend is currently not relevant. Donald Trump's policies will continue to exert pressure on the US economy, and we do not expect long-term growth from the US dollar. However, 2026 seems to be shaping up to be very positive for the dollar. Thus, long positions with targets of 1.3550 and 1.3611 can be considered if the price is above the moving average. If the price is below the moving average line, short positions can be traded with targets of 1.3306 and 1.3287 based on technical grounds. The market situation has flipped upside down in just one week.

Explanations for the Illustrations:

• Linear Regression Channels: Help define the current trend. If both are directed in the same direction, it indicates a strong trend.
• Moving Average Line (settings 20,0, smoothed): Determines the short-term trend and direction in which trading should be conducted.
• Murray Levels: Target levels for movements and corrections.
• Volatility Levels (red lines): Likely price channel where the pair will trade in the coming days based on current volatility metrics.
• CCI Indicator: Its entrance into the oversold zone (below -250) or the overbought zone (above +250) indicates that a trend reversal is approaching in the opposite direction.