On the hourly chart, GBP/USD declined somewhat on Monday but reversed overnight in favor of the British pound and began moving back toward the 76.4% retracement level at 1.3368. A new rebound from this level would once again favor the US dollar and a further decline toward the 100.0% Fibonacci level at 1.3368. Consolidation above 1.3368 would increase the likelihood of further gains toward 1.3426 and 1.3473.

The market situation has turned bullish. But for how long? The last completed downward wave broke below the previous low, but the new upward wave has also broken above the previous high. Thus, the bulls have temporarily taken the initiative. The FOMC's monetary policy tightening and the hawkish outlook conveyed by Kevin Warsh supported the dollar for a month. Perhaps the time has now come for a bullish counterattack.

There was no significant news on Monday, but an important UK unemployment report was released this morning. The data disappointed the bears, who may have been preparing to launch a new attack, encouraged by the prevailing momentum. The unemployment rate unexpectedly fell to 4.7%, although most traders had expected it to remain at 4.9%. At the same time, the number of unemployment benefit claims increased by 30,000 in September, exceeding forecasts. However, the August unemployment rate is clearly more important, which is why the pound gained ground from the start of the day. Tomorrow, the pound faces an even more important test in the form of September inflation data. If the Consumer Price Index rises to 3.4%, as expected, the Bank of England will move significantly closer to its first round of monetary policy tightening in several years. It is worth recalling that traders have not priced in Bank of England monetary policy tightening in recent weeks, so this factor could potentially provide substantial support for the bulls. The market has already priced in an FOMC rate hike, and more than one. Until recently, the Bank of England and the pound had largely been overlooked by traders.

On the 4-hour chart, GBP/USD returned to the 100.0% retracement level at 1.3159. Consolidation above this level would allow traders to anticipate further gains toward the 50.0% retracement level at 1.3409. The technical picture on the hourly chart is currently more convincing, so the hourly chart is the one to focus on. No new developing divergences are evident in any of the indicators today.

Commitments of Traders (COT) Report:

The sentiment of the "Non-commercial" trader category became even more bearish over the latest reporting week. Speculators reduced their Long positions by 1,074 and increased their Short positions by 8,279. The gap between Long and Short positions is now approximately 44,000 versus 151,000. The bears are once again strengthening their advantage. Previously, the bears' dominance was beyond question, but the situation is now less clear-cut because the fundamental backdrop has changed in recent months.

The bearish trend in the pound remains unconvincing, but much will depend in the near term on Trump's trade policy, the monetary policies of the Federal Reserve and the Bank of England, and the duration, scale, and consequences of the war in the Middle East. In recent months, the market had shifted toward expectations of peace, but negotiations between Iran and the United States failed before they had barely begun. There is no guarantee that they will resume anytime soon.

Economic Calendar for the United States and the United Kingdom:

• United Kingdom – Unemployment Rate (06:00 UTC).
• United Kingdom – Change in Average Earnings (06:00 UTC).
• United Kingdom – Change in the Number of Unemployment Benefit Claims (06:00 UTC).
• United States – Building Permits (12:30 UTC).
• United States – Housing Starts (12:30 UTC).

On October 20, the economic calendar contains five notable releases, with UK economic data standing out. Economic data may influence market sentiment on Tuesday, particularly during the first half of the day.

GBP/USD Forecast and Trading Recommendations:

Selling the pair is possible following a rebound from 1.3368 on the hourly chart, with a target of 1.3272. Buying is possible if the pair closes above 1.3272, with a target of 1.3368. This target has been reached. New long positions may be considered if the pair closes above 1.3368, with targets at 1.3426 and 1.3473.

The Fibonacci retracement levels are drawn from 1.3272 to 1.3674 on the hourly chart and from 1.3158 to 1.3655 on the 4-hour chart.