On the hourly chart, GBP/USD continued to decline on Tuesday after consolidating below the 38.2% Fibonacci retracement level at 1.3342, moving toward the 23.6% retracement level at 1.3263. A rebound from this level would favor the pound and allow for a modest recovery toward 1.3342. Consolidation below 1.3263 would favor a further decline toward the 1.3136–1.3177 support level.
The market situation remains bullish. The latest completed upward wave broke above the previous peak, while the new downward wave has not broken below the previous low. As a result, bulls have temporarily gained the upper hand. The FOMC's monetary policy tightening and the hawkish outlook conveyed by Kevin Warsh supported the dollar for a month. Bulls have now taken center stage, as the Bank of England may begin a monetary policy tightening cycle next week.
The news background on Tuesday was largely absent or relatively weak, but the pound continued to decline throughout the day. The current movement can still be described as a corrective pullback, but the decline has been too steady and persistent over the past few days to look like a typical correction. There are few convincing reasons for a new bearish advance. The Bank of England is expected to tighten monetary policy next week, while the Fed is expected to announce a pause in rate hikes this evening. Thus, monetary policy factors are fully supportive of the pound. However, as with the euro, the market is currently paying attention to little other than the dollar. Yesterday, the dollar received support from a strong US durable goods orders report, but these are the only positive developments for the US currency this week. Yet the dollar has gained approximately 100 pips in just the first two and a half days. In my assessment, this evening's FOMC meeting should trigger a decline in the US currency, regardless of Kevin Warsh's rhetoric. The dollar is once again demonstrating strength and potential, but these are being artificially sustained by the market itself. An artificially driven rally is not the best backdrop for a trend.
On the four-hour chart, GBP/USD rebounded from the 50.0% Fibonacci retracement level at 1.3409, reversed in favor of the US dollar, and declined toward the 76.4% Fibonacci level at 1.3277. A rebound from this level would favor the pound and allow for a modest recovery toward 1.3348 and 1.3409. A close below 1.3277 would increase the likelihood of a further decline toward the next Fibonacci level at 100.0% (1.3159), from which the pound began its advance. No emerging divergences are visible on any of the indicators today.
Commitments of Traders (COT) Report
Sentiment among Non-commercial traders 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, bearish 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, developments in the near future will depend on Trump's trade policy, the monetary policies of the Fed and the Bank of England, and the duration, scale, and consequences of the war in the Middle East. In recent months, the market had shifted toward expectations of peace, but negotiations between Iran and the United States collapsed before they had properly begun. The war between the two countries could resume in full force as early as November.
US and UK Economic Calendar
- US – FOMC interest rate decision (18:00 UTC).
- US – Kevin Warsh's press conference (18:30 UTC).
On October 28, the economic calendar contains two events, both of which are important. The impact of economic developments on market sentiment on Wednesday evening could be significant.
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 emerged after the pair closed below 1.3342, with targets at 1.3263 and 1.3177. These positions can remain open today. Buying opportunities may arise following a rebound from 1.3263 on the hourly chart, with a target of 1.3342.
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 four-hour chart.
