GBP/USD 5M Analysis

The GBP/USD currency pair also pulled back on Tuesday, driven by new negative news from the U.S. Throughout the day, a variety of messages emerged from the Middle East and across the Atlantic; however, the market focused only on the pessimistic ones. In reality, Donald Trump canceled the planned attack on Iran scheduled for Tuesday at the request of the leaders of the UAE, Saudi Arabia, and Qatar. Traders learned about this directly from Trump, so the actual circumstances remain unclear. Nevertheless, information about ongoing negotiations continues to reach the market. Therefore, in our view, there is slightly more positive sentiment than negative at the moment. Unfortunately, the UK unemployment report on Tuesday was worse than expected, which may have contributed to the British pound's decline during the day.

From a technical perspective, the downward trend on the hourly timeframe is unquestionable. This is not merely a trend; it is effectively a crash. However, this crash is unlikely to be long-lasting. Even last week, the decline in the pair did not always seem justified or commensurate with the news background that arrived on the currency market. Nevertheless, there are still no grounds to expect the downward trend to end. For that to happen, the British pound needs to surpass at least the critical Kijun-sen line.

On the 5-minute timeframe on Tuesday, two trading signals were generated. During the Asian trading session, the price first bounced off the critical line, allowing traders who were awake during the night to open short positions. In the American trading session, the area between 1.3369-1.3377 was reached, from which another bounce occurred. Therefore, short positions could be closed, and long positions opened.

GBP/USD 4H Analysis

On the 4-hour timeframe, the British pound is also within a downward trend following the breakdown of the upward structure last week. The price has literally fallen 300 pips, with the CHoCH line currently at 1.3653, but it may be adjusted lower as early as Wednesday. During last week's decline, several bearish FVGs can be identified, but we are focusing only on the most recent one. On Tuesday, the price completely filled this pattern and even received a reaction. However, the reaction was considerably weaker than for a similar pattern in the euro currency.

The decline in quotes may continue on Wednesday, but this will require overcoming the support area on the hourly timeframe. A "bullish" FVG has formed in the area of 1.3318-1.3345, which the price may also react to.

GBP/USD 1H Analysis

On the hourly timeframe, the GBP/USD pair has traded in only one direction—downward—over the past week. The macroeconomic and fundamental background remains little affected by the pair's movements, while geopolitics is pulling the British pound toward the "bottom" once again. However, we do not believe that without a real escalation in the Middle East, the dollar will continue to strengthen. On Monday, positive news from the White House prompted the dollar to fall by 100 pips immediately.

For May 20, we highlight the following key levels: 1.3096-1.3115, 1.3179-1.3187, 1.3369-1.3377, 1.3465-1.3480, 1.3588, 1.3671-1.3681, 1.3751-1.3763. The Senkou Span B line (1.3569) and the Kijun-sen line (1.3414) may also serve as sources of signals. It is recommended to set the Stop Loss to breakeven after the price moves in the right direction by 20 pips. The lines of the Ichimoku indicator may move throughout the day, which should be taken into account when determining trading signals.

On Wednesday, the UK is scheduled to release the April inflation report, which will be pivotal for the Bank of England's monetary policy at its next meeting. In the U.S., the formal FOMC minutes will be published.

Trading Recommendations:

Today, traders may open short positions targeting 1.3179-1.3187 upon consolidating below the 1.3369-1.3377 area. Long positions can be opened if there is a bounce from the area of 1.3369-1.3377 with a target of 1.3465-1.3480. On the 4-hour timeframe, a sell signal is expected to form in the bearish FVG at 1.3405-1.3432.

Explanations for the Illustrations:

• Price levels of support and resistance – thick red lines where the movement may end. These do not serve as sources of trading signals.
• Kijun-sen and Senkou Span B lines – Ichimoku indicator lines transferred from the 4-hour to the hourly timeframe. These are strong lines.
• Extremum levels – thin red lines where the price previously bounced. These serve as sources of trading signals.
• Yellow lines – trendlines, trend channels, and any other technical patterns.
• CHOCH – change of trend structure.
• Liquidity – Stop Loss, pending orders that market makers use to build their positions.
• FVG – Fair Value Gap. Price moves very quickly through these areas, indicating a complete absence of one side in the market. Subsequently, the price tends to return and react to such areas in continuation of the main trend.
• IFVG – Inverted Fair Value Gap. After returning to such an area, the price does not react to it; it breaks impulsively and then tests it from the other side.
• OB – Order Block. The candle on which a market maker opened a position with the aim of gathering liquidity to form their position in the opposite direction.