Last week, the GBP/USD pair declined into bullish imbalance 18, reacted to this pattern, formed a Bullish Engulfing candlestick pattern, and then returned to bearish imbalance 19. As of Monday, everything suggests that the bearish pattern will be invalidated, which is exactly what we need. There was no reaction to imbalance 19, which itself can be considered a signal. Thus, the market has recently produced two bullish signals, one of which allowed traders to open new long positions.
Without question, the British currency's growth over the past week and a half has been driven by rising market optimism regarding the conclusion of a framework agreement between Iran and the United States. Other factors may have contributed to the strengthening of the pound, but they were clearly not the leading force in this market narrative. Therefore, technical analysis points to further growth in the pound, and traders may continue holding long positions with a target at the May 1 high of this year. From a longer-term perspective, I expect a stronger rise in the pound, as currently only the geopolitical factor is capable of supporting the US dollar and bearish traders.
The situation regarding the resolution of the Middle East conflict is gradually improving, but traders still fear that the pendulum could swing back toward escalation at any moment. For the past two weeks, the market has been receiving predominantly optimistic headlines, but there have been many previous situations where optimism quickly turned into pessimism.
In my view, the trend remains bullish despite the pair's sharp declines earlier this year. At the moment, the ceasefire in the Middle East remains fragile, but it is still holding and may even be extended for at least 60 days if Tehran and Washington sign a framework agreement. However, the Strait of Hormuz remains under a dual blockade, the nuclear issue remains unresolved, and progress in negotiations can currently only be judged based on statements from Donald Trump. The situation regularly shifts between positive and negative developments. At present, the market is once again filled with optimism, but sentiment could reverse instantly. Until that happens, bulls may continue their offensive.
The technical picture is currently as follows: bullish imbalance 18 generated a price reaction, while bearish imbalance 19 is likely to be invalidated. Thus, the overall technical structure fully supports further gains in the pound. All that remains is to monitor geopolitical developments closely in order to exit long positions in time if negotiations once again reach a deadlock and the framework agreement remains "95% agreed."
There was no significant macroeconomic news background on Monday. Throughout the day, traders continued trading based on expectations surrounding the imminent conclusion of a framework agreement between Iran and the United States. During the current week, the pound may continue to benefit fully from this factor.
In the United States, the overall macroeconomic backdrop remains such that, in the long term, little can be expected other than further weakening of the dollar. Even the conflict between Iran and the United States changes very 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. currency remains difficult. The U.S. labor market continues to weaken, the economy is approaching recession, and the Federal Reserve has limited ability to tighten monetary policy in 2026. In addition, four major protest movements against Donald Trump have already taken place across the United States, while the departure of Jerome Powell could further worsen the situation for the dollar if the FOMC adopts a more dovish stance under Kevin Warsh. From an economic standpoint, I see no grounds for sustained dollar growth.
Economic Calendar for the U.S. and the U.K.:
The economic calendar for May 26 contains no significant releases. Therefore, the impact of macroeconomic data on market sentiment on Tuesday is expected to remain absent.
GBP/USD Forecast and Trading Advice:
The long-term outlook for the pound remains bullish. The "Three Drives Pattern" warned traders about the beginning of an upward move, and since then, three bullish patterns and three bullish signals have formed, all of which traders could have traded successfully. Two weeks ago, geopolitical developments complicated the bullish outlook, but buyers still managed to retain control and formed a new bullish signal within imbalance 18.
If geopolitical developments continue to remain positive, further growth is likely. I consider the main target for the pound to be the 2026 high at 1.3867, while the nearest target stands at 1.3656. At present, there are no grounds for considering a bearish trend. The only bearish imbalance is on the verge of invalidation, and no new bearish patterns can logically form during the current upward movement.
