Insights 
VT 
GBP/USD began the week strong, reaching the highest mark since February 2022 near 1.3600. However, it experienced a downward correction as the technical analysis indicates that it is currently overbought.
The US Dollar experienced a decline due to strong selling pressure after US President Donald Trump threatened the EU with 50% tariffs. This added momentum to GBP/USD, prompting a notable rally approaching the weekend.
Technical Analysis of GBP Usd
Technical analysis reveals a bullish pattern for GBP/USD based on the Elliott Wave theory, indicating a potentially ongoing upward trend. The pair has reached aggressive upward cycle stages with a long-term bullish impulse projected.
Throughout the week, Sterling maintained a robust stance, achieving levels above 1.3500. This gain was propelled by persistent pressure on the US Dollar, exacerbated by Trump’s tariff threats on EU imports.
In recent sessions, we’ve seen GBP/USD hit levels not touched since early 2022, peaking near 1.3600 before a modest pullback. While the pair showed firm momentum early in the week, the latter part reflected a degree of exhaustion – at least in the short term. Indicators like the Relative Strength Index have moved deep into overbought territory, suggesting the rally was somewhat stretched and possibly reacting to speculative flows rather than longer-term fundamentals.
The downward adjustment that followed was in line with what the technical picture had been hinting at. Overextensions typically draw in profit-taking, especially when macro headlines inject volatility. In this particular instance, the Dollar continued to feel the weight of trade policy risks. After Trump escalated rhetoric targeting the European Union with potential 50% tariffs, demand for the Dollar waned further. Unsurprisingly, the Pound found an opening to extend its gains.
Market Sensitivity Dynamics
We are looking at a narrative where moves are being driven as much by political developments as by standard economic reasoning. The tariff threat added more downward force to an already weakening Greenback, giving Sterling more room to advance. This wasn’t simply reactionary trading—it was structured, deliberate positioning reacting to the perceived risk of broader economic fallout.
From a wave analysis standpoint, Elliott Wave structures indicate a brisk upward trajectory is firmly in play. The current cycle appears to be deep into its impulsive phase. This doesn’t necessarily mean a linear rise, but it does imply the bias remains tilted to the upside until these formations either complete or show signs of exhaustion beyond mere technical setbacks.
For those engaged in short-term strategies, there’s a fine balance to strike. We’ve entered territory that offers opportunity as well as vulnerability. Momentum remains positive, but retracement risks have grown more prominent, not less. Now is not the time to chase rallies blindly. Tighter stops and clearer setups would serve better, particularly when the fundamental backdrop can shift quickly with a single policy headline.
Watching volume changes, breakout confirmations, or divergences should take priority now over basing decisions solely on headline moves. Price action will continue to respond not just to US data, but also the tone and frequency of trade-related announcements. If rhetoric escalates, additional Dollar weakness may materialise, but the market’s sensitivity can just as easily reverse if tensions are seen to ease.
Long-dated positions should consider the upside still valid, especially while remaining within established bullish channels, but must allow for swings, particularly with political variables in flux. Tactically, we aren’t out of the woods for sharp pullbacks, even if the broader view remains constructive. Employing layered entries and evaluating risk across both Dollar-side and Sterling-specific factors may offer more flexibility in uncertain stretches.
While Sterling’s performance has outpaced several peers recently, traders should keep perspective. A strong currency move, over a short span, often spurs positioning resets – even when fundamentals remain broadly supportive. Signs of such unwinds are appearing.
Constructive monetary expectations are layering into the current picture as well, but in the weeks ahead, price sensitivity to Fed or BoE commentary may override statistical releases. Traders need to stay nimble, as focus could shift from trade tensions to central bank policy narratives, almost without notice.
We must anticipate phases where the technical picture shows strength, even as external variables argue for caution. Taking cues from multiple sources, being patient with re-entries, and not forcing directional bets become vital in staying grounded as the next wave unfolds.
