The GBP/USD pair made another reversal in favor of the pound sterling and resumed its upward movement, but the last three days ended badly for the British currency. First, Iran and the United States once again failed to achieve any progress in negotiations, then a new series of mutual threats followed. Donald Trump stated that the temporary truce was on the verge of collapse and also said that he had never spoken about ending the war in the Middle East. The market immediately began anticipating a new escalation and buying the safe-haven US dollar, which negatively affected the current technical picture.
In addition, the US inflation report came in above traders' expectations, and although reluctantly, the market still began considering the possibility of further monetary tightening by the FOMC before the end of the year. After all, what other option is there if inflation in the United States remains twice as high as the Federal Reserve's target level? Moreover, in the United Kingdom, Keir Starmer's ruling party suffered defeat in local elections, which also did not add optimism among pound buyers. Over three days, the pound lost around 100 points and is now threatening to invalidate imbalance 20. The bullish pattern would be invalidated below the 1.3453 level. Bulls need to regain momentum as quickly as possible, while Tehran and Washington need to give the market renewed hope for peace.
The situation surrounding the conflict in the Middle East remains unresolved, and traders are uncertain about the market's next direction. Today it may swing in favor of the bulls, tomorrow in favor of the bears. This is exactly the type of market behavior we have been observing in recent weeks. At the moment, the bulls still retain the upper hand, but faith in peace in the Middle East and in the lifting of the Strait of Hormuz blockade is gradually fading.
The pound's rally began with a "Three Drives Pattern." Thus, traders received a bullish signal at the very beginning of the move, and the trend remains bullish. At present, the truce in the Middle East remains highly fragile, but the parties involved are still attempting to reach an agreement, at least according to media reports. However, the market cannot rely indefinitely on news that is not supported by actual results. The Strait of Hormuz remains under a double blockade. Tehran and Washington appear to have set a course toward lifting that blockade, but there has been no concrete progress. The situation alternates between improvement and deterioration. Markets were overflowing with optimism for about a month, but now they seem to be facing the cold reality.
The "Three Drives Pattern," marked by a triangle on the chart, allowed the bulls to launch an offensive. Imbalance 18 gave traders an opportunity to open long positions, imbalance 19 did so again, and imbalance 20 provided yet another opportunity. As a result, we received four bullish signals within the current impulse wave. Geopolitical developments allowed the bulls to launch a new advance, but the situation could easily reverse in favor of the bears.
The economic news background on Wednesday was once again not the reason for the pound's decline. Simply because there were no significant events in the United Kingdom today, and no new reports from Iran or the United States had yet emerged. Therefore, the pound continued falling today largely by inertia.
In the United States, the overall news environment remains such that, in the long term, there are no grounds to expect anything other than further weakness in the dollar. Even the conflict between Iran and the United States changes little in this regard. Geopolitical tensions temporarily reminded markets of the dollar's safe-haven status for about two months, but overall the long-term outlook for the U.S. dollar remains difficult.
The U.S. labor market continues to struggle, the economy is approaching recession, and unlike the ECB and the Bank of England, the Federal Reserve is not expected to tighten monetary policy in 2026. In addition, four major protests against Donald Trump have already taken place across the United States, and Jerome Powell's eventual departure could further worsen the dollar's situation—especially if the FOMC under Kevin Warsh adopts a more dovish stance. From an economic perspective, I see no basis for dollar growth.
News Calendar for the United States and the United Kingdom
United Kingdom
- Q1 GDP Growth Rate (06:00 UTC)
- Industrial Production Change (06:00 UTC)
United States
- Retail Sales Change (12:30 UTC)
- Initial Jobless Claims (12:30 UTC)
The May 14 economic calendar contains four key releases, and I would pay particular attention to the British reports. The impact of the economic background on market sentiment on Thursday could be moderate.
GBP/USD Forecast and Trading Advice
For the pound, the long-term picture remains bullish. The "Three Drives Pattern" warned traders about the beginning of the rally, and since then three bullish patterns and three bullish signals have already formed. Therefore, under current conditions, despite geopolitical tensions, I still expect further growth in the pound. However, it must be acknowledged that geopolitics could easily ruin the bulls' momentum. My target for the pound remains the 2026 high at 1.3867.
The reaction to imbalance 20 allowed traders to open long positions for the third or even fourth time already, but bulls have come under serious pressure in recent days and currently lack any meaningful support. At this time, there are no bearish patterns or signals.
