GBP/USD began to rise after taking liquidity from the most recent bearish swing, gaining a total of 260 points. The pound posted steady gains for five consecutive days, invalidating Imbalance 30. This is the first step toward the formation of a bullish trend. In addition, a bullish Order Block and bullish Imbalance 31 have formed. The technical picture appears to be turning increasingly bullish. The news backdrop also supported the bulls last week, but the bullish impulse 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. Therefore, based on technical factors alone, the pound could decline to 1.3300 this week, although the bulls now have the initiative. A resumption of the uptrend is expected 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.
An important factor for the pound's outlook is that traders expect the Bank of England to tighten monetary policy three times, while the Fed is expected to do so only once or twice at most. The dot plot also points to one policy tightening, and the latest FOMC minutes confirmed that most central bank officials expect just one rate hike. Of course, it is impossible to know how events will unfold in 2027, but this is the current consensus forecast. As a result, the Bank of England could raise rates more aggressively than the Fed in the coming months, which would clearly not support further gains in the US dollar. The dollar has already benefited fully from expectations of Fed policy tightening, and the market may now begin to price in tighter Bank of England policy. Geopolitical developments are currently the only factor supporting the dollar.
If the Fed had not decided to raise interest rates in September and signaled its willingness to continue tightening monetary policy, a decline in the US dollar would have been expected a month ago. That remains the outlook. GBP/USD has reversed in favor of the pound, and the next step is for bullish signals to form, allowing bulls to open long positions. The pound's long-term outlook remains bullish.
Do the bears have further downward potential? The prospects appear limited. Over the past six to eight weeks, the bears seem to have achieved the impossible by pushing the dollar to levels that are extremely high by recent standards. It is worth remembering that the market has had reasons to buy the dollar recently, but there have also been reasons for the pound to rise—factors that traders have largely overlooked. A move in the opposite direction may now begin, and it could be much more consistent with the underlying fundamentals than the previous decline.
There was no significant economic news on Monday. Therefore, the bears had no strong reason to launch another attack. However, traders expect the conflict in the Middle East to resume, prompting them to seek safe-haven assets and currencies once again. At present, though, the move appears to be a correction rather than the beginning of a new bearish advance.
The overall fundamental backdrop remains such that, in the long term, a decline in the US dollar is the only scenario that seems plausible. 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 intense phase. The outlook for FOMC monetary policy remains uncertain, and the market continues to anticipate tightening, which is the main reason for the bears' optimism. However, traders are still overlooking the prospect of monetary policy tightening by the Bank of England. Inflation in the United Kingdom 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 – Change in Durable Goods Orders (12:30 UTC).
- United States – New Home Sales (14:00 UTC).
The economic calendar for October 27 contains two events. Economic data may influence market sentiment on Tuesday during the second half of the day.
GBP/USD Forecast and Trading Advice:
The long-term outlook for the pound remains bullish. The bears have controlled the market in recent weeks, but the broader trading range is clearly visible on the daily chart. The liquidity sweep of the swing high formed on May 1 triggered a decline within the horizontal range. However, liquidity was also taken from the June lows, allowing the bulls to regain the initiative. Therefore, the short-term outlook has now turned bullish. For traders, this means that they should either maintain existing long positions or look for new buying opportunities in the near future. Potential entry points may emerge around the Order Block or Imbalance 31. However, a corrective pullback is now needed for new signals to form. The pound's target is near the upper boundary of the trading range at 1.3670. The reaction to Imbalance 29 has triggered the necessary corrective pullback.
