On the hourly chart, GBP/USD rebounded from the 1.3454–1.3457 resistance level on Tuesday, reversed in favor of the U.S. dollar, and declined toward the 76.4% Fibonacci retracement level at 1.3382. Today, a close below this level would increase the likelihood of further downside toward 1.3335 and 1.3298. A rebound from 1.3382 would favor the pound and allow for a corrective move higher toward the 1.3454–1.3457 level.

The wave structure remains bullish. The most recently completed upward wave broke above the previous high, while the latest downward wave has not yet broken below the previous low. Therefore, despite the recent decline, the bulls continue to maintain the upper hand. In my view, the 2026 bearish impulse has already ended, and only geopolitical developments could prevent the bulls from extending the advance. Even so, any geopolitical impact is likely to trigger only a corrective pullback. The bullish trend would be invalidated only if the pair falls below the latest swing low at 1.3340.

Tuesday's economic data was not negative for the pound. The market had expected the unemployment rate to rise to 5.0%, but it remained unchanged at 4.9%. Traders had also anticipated an increase of 29.4 thousand in the number of unemployed, whereas the actual figure came in at 6.7 thousand. Under normal circumstances, these reports should have supported the pound, yet the currency instead lost another 50 points.

This morning, the UK inflation report showed that headline inflation slowed more than expected, easing to 2.6%, while core inflation remained unchanged at 2.6%. The decline in headline inflation suggests that the Bank of England is unlikely to tighten monetary policy in the near term, which is a negative factor for the pound. I believe the market had already begun pricing in today's inflation report yesterday, as the labor market data should have triggered the opposite reaction. Therefore, another sharp decline in sterling is not necessarily expected today. However, technical analysis points to the 1.3382 level as the key reference point for trading decisions.

On the 4-hour chart, GBP/USD rebounded from the 23.6% Fibonacci retracement level at 1.3538, reversed in favor of the U.S. dollar, and continues to decline toward the 61.8% Fibonacci level at 1.3348 and potentially lower. A close below 1.3348 would increase the probability of further downside. No developing divergences are currently visible on any indicator.

Commitments of Traders (COT) Report:

Sentiment among the Non-commercial group became less bearish during the latest reporting week, although it remains bearish overall. The number of Long positions held by speculative traders increased by 6,521, while Short positions declined by 10,129. The gap between Long and Short positions now stands at approximately 51,000 versus 122,000. Bears have dominated the market in recent months. However, unlike before, this dominance is now increasingly difficult to justify given the changing fundamental backdrop.

I still do not believe in the resumption of a long-term bearish trend for the pound. In the near term, however, market direction will depend less on economic data, Trump's trade policy, or central bank monetary policy than on the duration, scale, and consequences of the conflict in the Middle East. In recent weeks, the market had shifted toward expectations of peace, but negotiations between Iran and the United States collapsed before they could make meaningful progress. There is also no guarantee that talks will resume in the near future.

Economic Calendar for the United Kingdom and the United States:

United Kingdom

• Consumer Price Index (06:00 UTC)

The economic calendar for July 22 includes one event, which has already been released. The economic backdrop is expected to continue influencing market sentiment on Wednesday.

GBP/USD Forecast and Trading Recommendations:

Short positions were possible following rebounds from the 1.3526–1.3543 and 1.3454–1.3457 resistance levels on the hourly chart, targeting 1.3382. That target has been reached. New short positions may be considered after a close below 1.3382, with downward targets at 1.3335 and 1.3298. Long positions may be considered if the pair closes back above 1.3382, targeting the 1.3454–1.3457 resistance level.

The Fibonacci retracement levels are drawn from 1.3457 to 1.3139 on the hourly chart and from 1.3158 to 1.3655 on the 4-hour chart.