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22.10.2026 07:10 PM
The GBP/USD pair began rising after sweeping liquidity below the most recent bearish swing and has since gained 260 points. Over the past five days, the pound has posted a strong advance, invalidating Imbalance 30, which had failed to produce a convincing reaction. This is the first step toward the formation of a bullish trend. In addition, a bullish Order Block and bullish Imbalance 31 have formed. In my view, the technical picture is rapidly turning bullish.
As for the fundamental backdrop, it has become much more favorable for the pound this week. Unemployment has declined, inflation has risen, and the Bank of England can no longer delay raising interest rates. The market has yet to price in any monetary policy tightening by the Bank of England, unlike the Federal Reserve's tightening, which has already been more than fully priced in. I do not see what could prevent the bulls from advancing. Imbalance 29 halted their advance. As expected, the pattern did trigger a reaction, so a corrective pullback may now begin. This would be an excellent development for the bulls, as it could allow one of the two bullish patterns to play out and generate buy signals.
An important factor for the pound's outlook is that traders expect the Bank of England to tighten monetary policy three times, while the Federal Reserve is expected to tighten only once or, at most, twice. The dot plot also points to one policy tightening, and the latest FOMC minutes confirmed that most central bank policymakers expect only 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 may ultimately raise interest rates more aggressively than the Federal Reserve in the coming months, which is unlikely to support further gains in the US dollar. The dollar has already benefited fully from expectations of Fed tightening; the market may now begin pricing in the Bank of England's tightening instead.
If the Fed had not raised interest rates in September and signaled its intention to continue tightening monetary policy, the US dollar would likely have started declining a month ago. I still expect the dollar to weaken. GBP/USD has reversed in favor of the pound, and the next step is for bullish signals to emerge, allowing traders to open long positions. In my view, the pound's long-term outlook remains positive.
Do the bears have any further room to advance? In my view, not much. Over the past month and a half to two months, the bears seem to have achieved the impossible by pushing the dollar to levels that are exceptionally 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 that traders have simply overlooked. A reversal in the opposite direction may now begin, and this move would be more fundamentally justified than the preceding decline.
There was no significant economic news on Thursday. Today, GBP/USD reacted to Imbalance 29, explaining the decline in the pair's exchange rate during the day. Tomorrow, business activity indices will be released in the UK and the US, followed by an FOMC meeting next week. The pound has time for a corrective pullback.
Overall, the fundamental outlook continues to favor a weaker US dollar in the long term, and further depreciation is expected. The war between Iran and the United States has not changed my outlook. Geopolitical tensions reminded the market of the dollar's safe-haven status for several months, but the conflict has already passed its most acute phase. The outlook for future FOMC monetary policy remains uncertain, while the market continues to anticipate tightening. This is the main reason the bears remain optimistic. However, traders are still overlooking the possibility of monetary policy tightening by the Bank of England. Inflation is rising in the UK, as it is around the world, leaving the Bank of England with little choice but to raise interest rates as well.
On October 23, the economic calendar contains four releases, with the UK reports being particularly noteworthy. Economic data may influence market sentiment during the first half of Friday's trading session.
The long-term outlook for the pound remains bullish. Bears have controlled the market in recent weeks, but the broader range is clearly visible on the daily chart. The liquidity sweep below the swing low formed on May 1 triggered a decline within the horizontal range. However, liquidity was also swept below the June lows, allowing the bulls to regain the initiative.
Therefore, I believe the short-term technical picture has now turned bullish. For traders, this means that in the near term, they should either maintain existing long positions or look for new buying opportunities. Potential setups may emerge at the Order Block or Imbalance 31. However, a corrective pullback will be needed before new signals can form. The pound's target is near the upper boundary of the range at 1.3670. The reaction to Imbalance 29 may trigger the corrective pullback needed for this scenario.
