The GBP/USD currency pair posted 150 pips of volatility on Friday, resulting in losses for the British currency. In just one day, without any visible escalation of the conflict in the Middle East, the dollar rose by another 150 pips against one of its main competitors. In general, the decline of the British currency (like many other dollar competitors) has been ongoing for a month and a half, and the market has been accounting for the geopolitical factor for about a month now. Currently, movements in the currency market have no correlation with the technical picture (of any timeframe), fundamental backdrop, or macroeconomic data. Thus, the entire analysis process boils down to guessing how much longer the dollar will keep rising. The trading process is focused on lower timeframes, where there is a real opportunity to enter at the start of a new trend.
What could save the euro and pound and halt the rise of the American currency? Only the de-escalation of the conflict in the Middle East. We concede that at some point, the situation will reach its peak, and further deterioration will either become impossible or lose its significance. For example, if oil prices rise to $200 per barrel, the market might respond with new dollar purchases. However, if oil rises to $500, it will carry little weight. If the Hormuz Strait remains blocked, eventually, the market will come to terms with it. If the war in Iran continues for several more months or years, traders will adapt to that situation very quickly as well. We want to emphasize that no matter how strong the current movement is, it will not last forever.
Is there a chance of de-escalating the conflict soon? The possibility always exists, but from whom will the initiative originate? Clearly not from Iran, as Tehran is wounded and thirsts for revenge after the assassination of its leader and nearly his entire family. It is also clearly not from the US, which has failed to achieve its goal of dismantling Iran's nuclear potential and benefits from high oil prices and shortages worldwide, as Donald Trump has explicitly stated. Thus, in our view, there are only two scenarios.
The first scenario is internal pressure on Trump. While the US may be profiting immensely from high oil prices, it must be recognized that it also incurs significant military casualties and financial costs related to the war. The longer the war continues, the more American citizens will question its necessity. We doubt that most Americans know where Iran is on the map. However, gas and store prices are rising again, and all of this is thanks to Trump. Thus, one fine day, the American president could declare full victory over Iran, and the conflict would end.
The second scenario is that Iran simply runs out of missiles, drones, and financial capability for engagement in the war, while the US does not continue to escalate the situation or attempt to defeat Iran (which seems unlikely). In this case, the conflict would turn into a sluggish situation. However, neither of these scenarios explains how the Hormuz Strait could be unblocked, which is currently a key event for the whole world and all markets.
The average volatility of the GBP/USD pair over the last 5 trading days is 105 pips. For the GBP/USD pair, this value is considered "average." Thus, on Monday, March 16, we expect movement within a range defined by the levels of 1.3117 and 1.3327. The upper channel of the linear regression has turned sideways, indicating a potential trend reversal. The CCI indicator has again entered the oversold zone, signaling a potential end to the correction; however, technical signals remain inconclusive.
Nearest support levels:
S1 – 1.3184
S2 – 1.3062
S3 – 1.2939
Nearest resistance levels:
R1 – 1.3306
R2 – 1.3428
R3 – 1.3550
Trading Recommendations:
The GBP/USD currency pair continues to correct for a month and a half, but its long-term prospects have not changed. Donald Trump's policies will continue to exert pressure on the US economy, so we do not expect the US currency to grow in 2026. Thus, long positions targeting 1.3916 and above remain relevant as long as the price is above the moving average. If the price is below the moving average line, it suggests considering small shorts targeting 1.3261 on geopolitical grounds. In recent weeks, nearly all news and events have turned against the pound.
Explanations for Illustrations:
Linear regression channels help identify the current trend. If both are pointing in the same direction, the trend is currently strong;
The moving average line (settings 20,0, smoothed) defines the short-term trend and the direction in which trading should currently proceed;
Murray levels are target levels for movements and corrections;
Volatility levels (red lines) indicate the likely price channel in which the pair will operate over the next 24 hours based on current volatility indicators;
The CCI indicator – its entry into the oversold area (below -250) or the overbought area (above +250) indicates that a trend reversal in the opposite direction is approaching.
