On the hourly chart, GBP/USD continued to decline on Monday and consolidated below the 38.2% Fibonacci level at 1.3342. Thus, the pound's decline may continue today toward the next retracement level of 23.6% at 1.3263. Consolidation above 1.3342 would allow traders to anticipate a recovery toward 1.3404.
The market situation remains bullish. The latest completed upward wave broke above the previous peak, while the new downward wave failed to break below the previous low. Thus, the bulls have temporarily taken the initiative. The FOMC's monetary policy tightening and the hawkish outlook conveyed by Kevin Warsh supported the dollar for a month. The bulls have now come to the forefront, as the Bank of England may begin a monetary policy tightening cycle next week.
There was no significant news on Monday, but the pound continued to decline. Thus, a corrective pullback has begun, although the technical outlook for the pound sterling remains bullish across all the charts under analysis. This currently gives the pound an advantage over the euro. For reasons that remain unclear, traders have already written off the euro, showing little interest in the ECB's monetary policy tightening. The situation is quite different for the pound and the Bank of England, which may deliver its first interest rate hike in a long time next week. This factor is most likely keeping the pound sterling afloat. However, the overall news background for the pound can hardly be described as positive. Global uncertainty and tensions continue to increase, and in such conditions, traders and investors prefer safe-haven assets and currencies. The pound is less of a safe-haven currency than the US dollar, which helps explain its weakness in recent months. It should be recalled that the market expects the military conflict in the Middle East to resume, with all the resulting consequences for the global economy.
On the 4-hour chart, GBP/USD rebounded from the 50.0% retracement level at 1.3409, reversed in favor of the US dollar, and closed below the 61.8% Fibonacci level at 1.3348. Thus, the decline may continue toward the next retracement level of 76.4% at 1.3277. No emerging divergences are currently visible on any of the indicators.
Commitments of Traders (COT) Report
The sentiment of the Non-commercial trader category became less bearish over the latest reporting week. The number of Long positions held by speculators increased by 10,043, while the number of Short positions decreased by 16,501. The gap between Long and Short positions currently stands at approximately 54,000 versus 134,000, respectively. The bears' advantage has narrowed again, although it had been widening in recent weeks. Previously, the bears' dominance was unquestionable, but it is now less clear because the news background has changed over the past few months.
The bearish trend in the pound remains unconvincing. However, much will depend in the near term on Trump's trade policy, the monetary policies of the Federal Reserve and the Bank of England, and the duration, scale, and consequences of the war in the Middle East. In recent months, the market has adjusted its outlook toward peace, but negotiations between Iran and the United States failed before they had properly begun. The war between the two countries could resume in full force as early as November.
Economic Calendar for the United States and the United Kingdom
- United States – Durable Goods Orders (12:30 UTC).
- United States – New Home Sales (14:00 UTC).
On October 27, the economic calendar contains two releases, both of moderate importance for the US dollar. Economic data may influence market sentiment during the second half of Tuesday's trading session.
GBP/USD Forecast and Trading Recommendations
Selling the pair was possible following a rebound from 1.3404 on the hourly chart, with a target of 1.3342. This target was reached. Further selling opportunities arose when the pair consolidated below 1.3342, targeting 1.3263. These positions can remain open today. Buying opportunities may arise if the pair consolidates above 1.3342 on the hourly chart, with a target of 1.3404.
The Fibonacci retracement levels are drawn from 1.3674 to 1.3136 on the hourly chart and from 1.3158 to 1.3655 on the 4-hour chart.
