The GBP/USD pair began to rise after liquidity was swept from the latest bearish swing, gaining a total of 260 points. A bullish order block and a bullish imbalance 31 were formed, shifting the technical picture to a bullish one. The fundamental backdrop supported the bulls last week, but the bullish momentum has now stalled as the price encountered bearish imbalance 29. The chart clearly shows the price reacting to this pattern, triggering a corrective pullback. The targets for this pullback are two new bullish patterns that are also visible on the chart.
Yesterday, I suggested that the pound could decline to 1.3300, and today the pair fell to 1.3306. I expect the pound's upward movement to resume once the corrective pullback is complete. Next week, the Bank of England may tighten monetary policy, which could coincide with the end of the correction and the price reaching both bullish patterns. However, the imbalance or order block could also be tested and trigger a reaction before the Bank of England meeting. The bulls could launch another advance as early as tomorrow evening, as the Fed is not expected to tighten policy further in October, while the December rate hike has already been priced in by traders.
Another important factor for the pound's outlook is that traders expect the Bank of England to tighten monetary policy three times, compared with only one or at most two hikes from the Fed. The dot plot also points to one additional tightening move, while the latest FOMC minutes confirmed that most central bank policymakers expect only one rate hike. Of course, the course of events in 2027 remains uncertain, but this is the current consensus forecast. Consequently, the Bank of England could ultimately raise rates more aggressively than the Fed over the coming months, which would clearly make it harder for the US dollar to continue rising. Geopolitical developments are currently the dollar's only significant source of support.
If the Fed had not raised interest rates in September and signaled its willingness to continue tightening monetary policy, I would have expected the US dollar to begin declining a month ago. That remains the expectation now. The pair has reversed in favor of the pound, and the remaining step is for bullish signals to form, giving bulls opportunities to open buy positions. In my view, the pound's long-term outlook remains bullish.
Do the bears have further room to advance? In my view, their potential is limited. Over the past month and a half to two months, the bears seem to have achieved the seemingly impossible by pushing the dollar to levels that are unusually high by recent standards. It is worth remembering that the market has had reasons to buy the dollar recently, but it has also had reasons to support the pound—factors that traders have largely overlooked. As a result, the market may now begin to move in the opposite direction, in a way that is more consistent with the underlying fundamentals than the previous decline.
On Tuesday, the economic backdrop allowed the bears to push the pound a little lower. However, the pound now has two strong support zones below the current price. It may also find support within the trading range that began in March this year. The bears received support today from a strong US durable goods orders report, but data of this kind may not be sufficient to break through bullish imbalance 31 and the order block. For the euro, I expect the decline to end; for the pound, I expect a renewed advance in the very near term.
The overall fundamental backdrop remains such that, over the long term, a decline in the US dollar is the only outcome I consider likely. The war between Iran and the United States has not changed this outlook. Geopolitical developments prompted the market to focus on the dollar's safe-haven status for several months, but the conflict has already passed its most acute phase. The future path of FOMC monetary policy remains uncertain, while the market continues to focus almost exclusively on further tightening. This is the main reason for the bears' optimism. However, traders continue to overlook the prospect of monetary policy tightening by the Bank of England. Inflation in the UK is rising, as it is around the world, leaving the Bank of England with little choice but to raise rates as well.
US and UK Economic Calendar
- United States — FOMC interest rate decision (18:00 UTC).
- United States — Kevin Warsh's press conference (18:30 UTC).
The economic calendar for October 28 contains two events, both of which are important. The economic backdrop could have a significant impact on market sentiment on Wednesday evening.
GBP/USD Forecast and Trading Tips
The long-term outlook for the pound remains bullish. The bears have controlled the market in recent weeks, but the trading range clearly visible on the daily chart remains intact. The liquidity sweep of the swing formed on May 1 triggered a decline within the horizontal range. However, liquidity was also swept below the June lows, allowing the bulls to regain control. Therefore, I consider the short-term technical picture to have turned bullish.
For traders, this means that they should either maintain existing buy positions or look for new buying opportunities in the near future. Potential entry opportunities may emerge within the order block or bullish imbalance 31. The pound's target is near the upper boundary of the trading range at 1.3670.
