The GBP/USD pair reversed in favor of the British pound and posted a fairly strong advance, which could mark the beginning of a broader bullish trend. In my view, the U.S. dollar's rally between June 17 and June 24 was not justified by the underlying news backdrop. By that time, the geopolitical conflict in the Middle East had effectively come to an end, yet it had been the primary driver of the dollar's strength throughout 2026. Therefore, seeing the dollar rise first because of the war and then continue rising after the conflict had ended was, at the very least, unusual. It is also surprising that the U.S. dollar did not strengthen today despite another escalation in the Middle East overnight. This renewed escalation has once again complicated the market outlook for traders.
At first, the market believed that U.S. inflation would continue rising unless the Federal Open Market Committee (FOMC) intervened. Later, expectations of further inflation accelerated began to ease as oil prices fell to around $70 per barrel. Today, however, oil has climbed to nearly $80, and the consequences of the latest escalation in the Middle East could result in another blockade of the Strait of Hormuz and Iranian ports. If events unfold according to the most pessimistic scenario, oil prices could quickly return above $100 per barrel. Under such circumstances, hopes for slowing inflation in either the United States or the eurozone would quickly fade. The market would once again have to reassess its expectations regarding the monetary policies of both the Federal Reserve and the European Central Bank.
Technical analysis pointed to the possibility of a rise toward 1.3322, which is exactly what occurred. Price first swept liquidity below the April 6 low and then below the March 31 low. Therefore, there were solid technical grounds for expecting further gains in the British pound. Given that the U.S. dollar still lacks convincing reasons to sustain a long-term uptrend and has already posted impressive gains in 2026, I believe the bears are unlikely to maintain their offensive. Last week also saw the formation of Bullish Imbalance 23. Price has already reacted to this imbalance twice, including today, after delivering a solid advance on Monday. However, the pound remains trapped between two opposing imbalance zones, and the market is awaiting a resolution. One of these imbalances will eventually have to be invalidated. In my opinion, the bulls continue to hold the stronger outlook, particularly considering the market's reaction to Bullish Imbalance 23.
At present, the market remains highly cautious about the agreement between Iran and the United States, and recent events suggest that such caution is fully justified. Military strikes near the Strait of Hormuz continue to occur regularly despite the memorandum signed several weeks ago. The Federal Reserve's hawkish stance triggered a strong rally in the U.S. dollar, but I still do not see what could provide the bears with enough momentum to sustain further gains. Can expectations of tighter FOMC monetary policy alone continue to support the dollar?
There were no significant economic releases on Wednesday. Throughout the day, the market could have focused on geopolitical developments but chose not to, as traders appear increasingly desensitized to this theme. As a result, technical analysis is likely to remain the primary market driver in the near term, particularly this week.
Overall, the broader fundamental backdrop still leads me to expect further weakness in the U.S. dollar over the long term. Neither the conflict between Iran and the United States nor the possibility of Federal Reserve rate hikes in 2026 has fundamentally changed that outlook. Geopolitical tensions reminded investors of the dollar's safe-haven status for several months, but the conflict has either ended or is at least moving toward a resolution. The Federal Reserve intends to raise interest rates in 2026, which is undoubtedly supportive for the dollar. However, tighter monetary policy would also slow the U.S. economy and weaken the labor market. Moreover, Donald Trump appointed Kevin Warsh to lead the FOMC with the expectation of ultimately delivering a more accommodative monetary policy—something Jerome Powell was unwilling or unable to provide. Therefore, I do not believe that any tightening by the Federal Reserve will evolve into a prolonged tightening cycle. In my opinion, any appreciation of the U.S. dollar should therefore be viewed as temporary rather than structural.
Economic Calendar for the United States and the United Kingdom
United States
- Initial Jobless Claims (12:30 UTC)
- Existing Home Sales (14:00 UTC)
The economic calendar for July 9 contains only two secondary events. Therefore, the impact of the economic backdrop on market sentiment on Thursday is expected to remain minimal or nonexistent.
GBP/USD Forecast and Trading Tips
The long-term outlook for the British pound remains bullish. Following liquidity sweeps below the two most recent swing lows, the bulls now have an opportunity to regain control of the market. The pound could still resume its decline toward the bullish trend invalidation level at 1.3007, but this would require fresh bearish signals. A sell signal could only emerge within Imbalance 21.
The bullish case is supported by the two completed liquidity sweeps as well as Bullish Imbalance 23. This bullish setup provides the bulls with a stronger technical foundation for further gains. The market has already reacted to Bullish Imbalance 23, and the next upside targets are the highs of May 1 and January 27, located at 1.3656 and 1.3867, respectively. The next key confirmation for the bullish scenario would be the invalidation of Imbalance 21.
