GBP/USD Analysis: Bullish Momentum Signals Shift in Downtrend

The GBP/USD pair has experienced a notable shift in technical structure after absorbing liquidity from its latest swing low, advancing by 260 points. Five consecutive sessions of gains led to the invalidation of Imbalance 30, marking an initial step toward establishing a bullish trend. Furthermore, the formation of a bullish Order Block and bullish Imbalance 31 underscores strengthening upside momentum.

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Fundamental developments in the UK are currently offering solid support for the British pound. Recent macroeconomic data highlighted falling unemployment alongside rising inflation, increasing market expectations for Bank of England (BoE) policy tightening. While Federal Reserve rate hikes appear fully priced into the US dollar, markets have yet to fully discount potential BoE rate increases, creating favorable tailwinds for the pair.

Divergence in monetary policy outlooks favors the pound over the medium term. Consensus expectations suggest the BoE could implement up to three rate hikes, compared to one or two projected for the Federal Reserve. With the latest FOMC minutes and dot plot confirming expectations of a single Fed rate increase, the BoE's potentially more aggressive stance could limit further US dollar appreciation.

UK economic releases from Friday provided mixed signals but generally restricted downside pressure. Stronger-than-expected UK manufacturing and services activity reports helped maintain the pair's bullish trajectory. Conversely, UK retail sales contracted by 0.4% month-on-month, though bears struggled to capitalize on the release.

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Technical Outlook and Strategy

Despite recent gains, upside momentum temporarily halted near Imbalance 29, triggering a potential corrective pullback. A short-term consolidation phase toward the newly established bullish Order Block or Imbalance 31 would provide favorable technical setups for long positions. Liquidity sweeps below previous swing lows from May 1 and June suggest the broader horizontal range remains supportive of GBP/USD bulls.

Looking ahead to October 26, the economic calendar contains no major UK or US releases, leaving price action driven primarily by technical dynamics. The overall technical outlook for GBP/USD remains constructive, with upside targets focused near the upper boundary of the range at 1.3670. Traders may monitor corrective pullbacks into support zones to identify strategic buying opportunities.

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