GBP/USD: Will Demand Zones Trigger the Next Bullish Rally?

25 oct

The GBP/USD pair showed some strength on Thursday, advancing to open the Friday London session at 1.2978 as of the time of writing. Despite the recent uptick, the pair’s near-term outlook remains uncertain, as traders assess various market dynamics and potential demand levels that could drive future price action.

Technical Overview: Mixed Sentiment and COT Report Analysis
From a technical standpoint, the Commitment of Traders (COT) report indicates an interesting divergence between retail traders and institutional investors. Retail traders have generally adopted a bearish stance, while "smart money" is beginning to build bullish positions, hinting at a potential shift in market sentiment. This kind of divergence often acts as a precursor to a trend reversal, but timing is critical.

Adding to this potential bullish sentiment is our Forecaster, which currently suggests a possible start of a bullish season for the British Pound. However, our technical analysis suggests that the price has not yet reached a significant demand area to trigger a strong buying opportunity. As it stands, the recent bullish push may be short-lived, as the GBP/USD appears poised for a bearish correction. This pullback could be necessary for the pair to establish a firmer demand base before initiating a more sustainable bullish rally aligned with seasonal patterns.

US Dollar Outlook: Trump’s Impact on Market Dynamics
Meanwhile, the outlook for the US Dollar remains largely positive, fueled by growing expectations of a potential Donald Trump victory in the upcoming US presidential election on November 5. Traders are anticipating the return of his aggressive economic policies, which are likely to include higher tariffs and lower taxes—measures historically seen as supportive of the US Dollar.

However, the potential impact of a Trump administration could be negative for the currencies of major US trading partners, such as the British Pound. As traders price in this scenario, the US Dollar may strengthen further, adding additional bearish pressure on the GBP/USD pair in the short term.

Current Strategy: Awaiting Key Demand Levels
Given the current technical and fundamental setup, we are maintaining a cautious approach. While the recent price action and the COT data suggest a potential bullish shift for the GBP/USD, our strategy is to wait for the price to reach a key demand area before considering any long positions. This approach aims to minimize downside risk and capitalize on a more confirmed trend reversal.

For now, we are on the sidelines, closely monitoring price movements and upcoming economic data releases that could influence market sentiment. Should the pair dip further into a demand zone, it could present an attractive opportunity for a long setup, aligned with both smart money positioning and seasonal trends.

Conclusion
The GBP/USD shows signs of a potential bullish season on the horizon, but with the price currently failing to reach strong demand levels, a pullback appears likely. Meanwhile, the US Dollar's strength, driven by speculation of Trump’s possible return to the White House, continues to weigh on the pair. For now, our strategy remains patient and data-driven, with a focus on finding the right demand level to initiate a bullish position. As always, staying disciplined and responsive to market shifts will be key in navigating the upcoming volatility.

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