GBP/USD Overview. February 18. The Pound is on the Brink of Collapse

[Ben Graham]

The GBP/USD currency pair traded lower on Wednesday, with slightly more activity than in previous days. This can be easily explained. In the morning in the UK, the unemployment report was released, proclaiming an increase in the rate to 5.2%. To be honest, we did not expect such a strong reaction to the British macroeconomic data. At the same time, the market did not expect British unemployment to rise again. Thus, a single report created problems for the British currency, which had just begun to adjust to a new phase of the global upward trend.

Meanwhile, information has surfaced about market concerns over the appropriateness of the Federal Reserve's strong easing of monetary policy this year. Various hedge funds are reportedly reducing their short positions on the dollar, hoping that the American economy will continue to demonstrate high growth rates and that the labor market has finally started to recover. Experts also point to the persistent nature of core inflation, suggesting that further rate cuts may not be appropriate.

Many experts note that the situation could turn in any direction at a moment's notice. A strengthening of the U.S. dollar amid declining "dovish" market sentiment could lead to renewed criticism of the Fed from Donald Trump. Starting in May, with the new Fed Chair Kevin Warsh, Trump may once again demand that the key rate be reduced to minimal levels. If inflation in America continues to decline, as it has over the past 5 months, the Fed should already consider continuing the rate-cutting program, as otherwise there is a risk of inflation falling below the target level.

However, the main factor behind the decline in "dovish" expectations lies in the U.S. labor market. Many market participants were encouraged by the January Non-Farm Payroll report, backed by a decrease in the unemployment rate. In our view, both of these reports may be revised downward next month, as has happened repeatedly with American data over the last six months. Additionally, we cannot overlook the 2025 Non-Farm Payroll data, which were revised downward to minuscule levels each month. In our view, the market is once again overly optimistic about the dollar, driven by past performance.

On the daily timeframe, the GBP/USD pair may fall below the critical line, which would be very detrimental to the British pound's prospects. After rising from 1.3000 to 1.3860, a correction is certainly needed, and we believe we are currently witnessing it. Yes, it is prolonged and appears more complicated, but on the same daily timeframe, it is clear that the current correction is not as significant as it seems. We believe the British currency could drop to 1.3400 before a new rise.

The average volatility of the GBP/USD pair over the last 5 trading days, as of February 18, stands at 82 pips, characterized as "average." On Wednesday, February 18, we expect the pair to trade within a range bounded by 1.3461 and 1.3625. The upper linear regression channel is directed upwards, indicating a trend recovery. The CCI indicator has entered the overbought territory, signaling a potential end to the correction.

Nearest Support Levels:

S1 – 1.3428

S2 – 1.3306

S3 – 1.3184

Nearest Resistance Levels:

R1 – 1.3550

R2 – 1.3672

R3 – 1.3794

Trading Recommendations:

The GBP/USD currency pair is on track to continue its 2025 upward trend, and its long-term prospects remain unchanged. Trump's policies will continue to exert pressure on the U.S. economy, so we do not expect the U.S. currency to grow in 2026. Even its status as the "reserve currency" no longer holds significance for traders. Thus, long positions with targets of 1.3916 and above remain relevant for the near future when the price is above the moving average. If the price is below the moving average line, small shorts can be considered for targets of 1.3461 and 1.3428 on technical (correctional) grounds. Occasionally, the American currency shows corrections (in a global sense), but for trend growth, it requires global positive factors.

Explanations for Illustrations:

Linear regression channels help determine the current trend. If both are pointing in the same direction, it indicates a strong current trend;

The moving average line (settings 20,0, smoothed) determines the short-term trend and the direction in which trading should currently be conducted;

Murray levels are target levels for movements and corrections;

Volatility levels (red lines) indicate the probable price channel in which the pair will spend the next day 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.

The material has been provided by InstaForex Company - www.instaforex.com