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20.05.2026 08:26 PMThe GBP/USD pair declined for four consecutive days. As a result of this drop, the bears reached imbalance zone 18, which is a bullish pattern. Therefore, unless new negative developments for the pound emerge this week, the bearish attacks may end here.
This week, we saw a convincing reaction to imbalance 18, its complete filling, a sharp rebound in prices, the formation of a Bullish Engulfing pattern, and a return into bearish imbalance 19. Thus, the bulls have taken the first step toward a new bullish impulse. Now they need to take the second step — invalidate the bearish imbalance.
What are the chances of that happening? Given the euro's renewed decline on Tuesday, they are not very high at the moment. Considering Donald Trump's latest aggressive statements, the odds are even lower. The U.K. inflation report released this morning somehow failed to trigger a new wave of bearish attacks.
As a result, the balance could shift either toward the bears or the bulls, but from now on, everything will depend on geopolitics. A bullish signal was formed this week, and analysis of the hourly chart currently suggests growth is more likely than further decline.
The situation surrounding the resolution of the Middle East conflict remains uncertain, and traders are unclear 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 pattern we have observed in recent weeks.
At the moment, belief in peace in the Middle East and the lifting of the blockade of the Strait of Hormuz has fallen to very low levels, but this factor has likely already been priced in by traders.
In my view, the trend remains bullish despite the pair's sharp declines this year. The ceasefire in the Middle East remains fragile, but it still exists. Of course, the market cannot rely indefinitely on information that is not supported by facts.
The Strait of Hormuz remains effectively under a dual blockade. Tehran and Washington set a course toward lifting this blockade several weeks ago, but so far there has been no result. The situation keeps shifting between improvement and deterioration. Markets were filled with optimism for nearly a full month, but last week they received a cold dose of reality.
The current technical picture is as follows: bullish imbalance 18 generated a price reaction, so if not for bearish imbalance 19, I would already be preparing for a strong bullish advance. However, bearish imbalance 19 was formed within a bullish trend, so I do not believe it should be used as a basis for opening short positions.
The downward movement may continue only in the event of genuinely significant and pessimistic geopolitical news related to the Middle East conflict.
The economic news on Wednesday once again tried to push the pound back into a downward trend, but the bulls managed to hold their ground. Inflation in the United Kingdom did indeed slow in April, as most traders expected, but it slowed much more sharply than forecasts suggested.
As a result, the probability of Bank of England monetary policy easing in June shifted from being almost certain to almost nonexistent. And this is a problem for the pound.
In the United States, the overall information backdrop still suggests that, in the long term, nothing other than a decline in the U.S. dollar should be expected. Even the conflict between Iran and the United States changes little in this regard.
Geopolitics temporarily reminded investors 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 weaken, 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 worsen the dollar's position further — especially if the FOMC becomes more dovish under Kevin Warsh.
From an economic perspective, I see no basis for sustained dollar growth.
The May 21 economic calendar contains seven events, with the British PMI reports standing out the most. The influence of economic data on market sentiment on Thursday may remain limited.
For the British pound, the long-term outlook 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.
Last week, geopolitics complicated the bulls' otherwise optimistic outlook, but they still have a chance to maintain control within imbalance 18. My target for the pound remains the 2026 high at 1.3867.
I will begin considering a bearish trend only if imbalance 18 is invalidated. In that case, bearish patterns would come into play. Until that happens, I expect imbalance 19 to be invalidated and the upward movement to continue.
