On the hourly chart, the GBP/USD pair continued to fall on Tuesday and reached the support level of 1.3513–1.3526, which can be considered the lower boundary of the horizontal channel that has been forming over the past two weeks. Thus, a rebound from this zone will work in favor of the European currency and resume growth towards the corrective level of 61.8% – 1.3596 and the resistance level of 1.3632–1.3641. Closing the pair below the 1.3513–1.3526 level will indicate that the bears are going on the offensive with the first target of 1.3428–1.3437.
The wave situation remains bullish. The last completed upward wave broke through the previous peak, and the last downward wave broke through the previous low by only a few points in sideways conditions. Geopolitics provided the bears with an almost complete advantage in the market for two months, then the geopolitical background changed and now supports the bulls to a greater extent. Currently, the truce between Iran and the United States continues, but the situation is shifting towards an escalation of the conflict and a prolonged confrontation. It will be difficult for bulls to launch attacks in the coming weeks, and the bullish trend will be reversed below the 1.3513–1.3526 level.
The information backdrop on Tuesday was favorable for the bears, as there was no positive news from the Middle East. The market is again focusing on the dollar, fearing a resumption of the war between Iran and the USA, as both sides of the conflict continue to stoke tensions, regularly exchanging new threats. No one is willing to concede in negotiations. Thus, the positions of the bulls are deteriorating day by day. Currently, the GBP/USD pair is being held up from a stronger decline by the fact that the truce is still in place. Though it has been violated several times, full-scale hostilities are not occurring. However, if escalation happens and negotiations are terminated, the pair could drop much lower than the 1.3513–1.3526 level, affecting the graphical picture. It is also worth noting yesterday's report on inflation in the USA, which points to one thing — the indicator is slipping out of the Fed's control. In just two months, the Consumer Price Index has jumped from 2.4% year-on-year to 3.8% year-on-year. If the conflict in the Middle East continues, inflation could surge to 5-6%. What the Fed will do in this case is still hard to understand. Donald Trump continues to demand policy easing, but in this case, inflation could spike to 7-8%.
On the 4-hour chart, the pair has consolidated above the descending trend channel, which allows for an expectation of a full-fledged "bullish" trend. A rebound at the 50.0% Fibonacci level of 1.3514 would lead to new bull attacks towards the levels of 1.3597 and 1.3700. The graphical picture on the hourly chart is now more informative, so I advise keeping a closer eye on the hourly chart. No new developing divergences are currently observed.
Commitments of Traders (COT) Report:
The sentiment among "Non-commercial" traders in the last reporting week has become more "bearish." The number of Long positions held by speculators rose by 2,996, while the number of Short positions increased by 6,265. The gap between the number of Long and Short positions is currently as follows: 62 thousand versus 126 thousand. For six consecutive weeks in February and March, non-commercial traders actively increased their sales and shed their purchases, leading to a significant imbalance between Long and Short positions. In recent months, bears have dominated, which raises no questions given the geopolitical situation.
I still do not believe in a "bearish" trend for the pound, but now everything depends not on economic indicators, Trump's trade policy, or central banks' monetary policy, but on the duration, scale, and consequences of the war in the Middle East. In recent weeks, the market has adjusted towards de-escalation of the conflict, but the latest news indicates that we are still far from a full truce, and war could resume any day. In this case, the advantage of the bears could become even stronger.
News calendar for the USA and the UK:
- USA – Producer Price Index (12:30 UTC).
The economic calendar for May 13 contains one minor entry. The impact of the economic background on market sentiment on Wednesday may be extremely weak.
Forecast for GBP/USD and advice for traders:
Sales of the pair were possible upon a new rebound on the hourly chart from the 1.3632–1.3641 level with a target of 1.3513–1.3526. The target has been reached. New sales should occur upon closing below the 1.3513–1.3526 level with a target of 1.3428–1.3437. Purchases are possible upon a rebound from the 1.3513–1.3526 level with a target of 1.3632–1.3641.
Fibonacci levels are constructed based on 1.3866–1.3158 on the hourly chart and 1.3866–1.3158 on the 4-hour chart.
