On the hourly chart, the GBP/USD pair continued its decline on Friday and consolidated below the 1.3349–1.3355 level. On Monday morning, the pair returned to this zone. Therefore, a rebound from this area today would favor the US dollar and a renewed decline toward the 76.4% Fibonacci retracement level at 1.3277. Consolidation above the zone would allow traders to expect some growth toward the 1.3408 and 1.3454 levels.
The wave structure turned bearish last week. The latest completed upward wave exceeded the previous peak by only a few pips, while the latest downward wave confidently broke below the previous low. Geopolitics is currently supporting the bears, as the market has still not seen the signing of an agreement between Iran and the United States. At the moment, the ceasefire continues, but the situation is shifting toward escalation and a prolonged confrontation.
Friday's news background was limited to the US industrial production report, and production volumes came in above traders' expectations, once again supporting the bears. Over the weekend, Donald Trump again demanded that Tehran sign an agreement with the United States, otherwise Washington would resume missile strikes. Negotiations are currently frozen, or at least no information is reaching public sources. Iran and the US have still failed to agree on the most sensitive issues, while the pause in the war only allows Iran to rebuild destroyed infrastructure, particularly military infrastructure.
Iran understands that its position in this conflict is not a losing one. Iran does not possess the military strength of the US and its regional allies, but defense is always easier than offense. The blockade of the Strait of Hormuz is damaging the economies of half the world's countries, which quite naturally blame not Iran, but Donald Trump. Thus, at the moment, the entire world is effectively being held hostage by Iran and the US president, who are unable to reach an agreement, while aggression was initiated by Washington and Jerusalem, not Tehran. The longer the ceasefire lasts, the better prepared Iran will be for the next war. The longer the war continues, the higher oil and gas prices will rise for the entire world. The US has failed to strip Tehran of its nuclear status, failed to destroy its military infrastructure, and new leaders have replaced those who were killed. At this point, Trump has achieved nothing in Iran.
On the 4-hour chart, the GBP/USD pair declined toward the 23.6% Fibonacci retracement level at 1.3327. A rebound from this level would favor the British pound and some growth toward the 38.2% Fibonacci level at 1.3429. Consolidation below 1.3327 would increase the likelihood of a continued decline toward the 0.0% retracement level at 1.3159. No emerging divergences are currently observed on any indicator.
Commitments of Traders (COT) Report:
The sentiment among the "Non-commercial" category of traders became less bearish during the latest reporting week. The number of long positions held by speculators increased by 17,032 contracts, while short positions decreased by 3,817 contracts. The gap between long and short positions now stands at approximately 79,000 versus 123,000. For six consecutive weeks in February and March, non-commercial traders actively increased selling positions and reduced buying positions, creating a significant imbalance between longs and shorts. In recent months, bears have dominated, which raises no questions given the geopolitical backdrop.
I still do not believe in a long-term bearish trend for the pound, but everything now depends not on economic data, Trump's trade policy, or central bank monetary policy, but on the duration, scale, and consequences of the war in the Middle East. In recent weeks, the market had shifted toward expectations of de-escalation, but recent news suggests that a full ceasefire remains far away and the war could resume at any moment.
Economic Calendar for the US and UK:
The May 18 economic calendar contains no notable events. Therefore, the influence of economic data on market sentiment on Monday will be absent.
GBP/USD Forecast and Trading Recommendations:
Selling opportunities were available after a rebound from the 1.3632–1.3641 level on the hourly chart, with targets at 1.3513–1.3526 and 1.3428–1.3437. All targets were exceeded by a wide margin. Today, selling opportunities remain relevant after a rebound from the 1.3349–1.3355 level, with targets at 1.3277 and 1.3177. Buying opportunities may emerge if the pair closes above the 1.3349–1.3355 level, with targets at 1.3408 and 1.3454.
Fibonacci retracement grids are based on 1.3158–1.3655 on the hourly chart and 1.3866–1.3158 on the 4-hour chart.
