Regarding the GBP/USD pair, the wave analysis remains sufficiently clear and, at the same time, complex. The construction of a new downtrend section continues, the first wave of which has taken on a very extended form. The second wave has also turned out to be quite prolonged, giving us every reason to expect the prolonged construction of the third wave.
At the moment, I am not fully confident that the construction of wave 2 or b is complete. The pullback of quotes from the peaks reached is too small to consider it a guaranteed start of wave 3 or c. Wave 2 or b has already taken on a five-wave form, but it still remains corrective and should be completed in the near future (or is already completed). Nevertheless, we continue to observe the construction of new and new internal waves, which are currently very difficult to attribute to any specific wave of a larger scale.
Targets for lowering the pair within the assumed wave 3 or c are below the level of 1.2039, corresponding to the low of wave 1 or a. Unfortunately, wave analysis tends to complicate and not correspond to the news background. At this time, I do not abandon the working scenario, but the British pound has been trading horizontally for several months.
I do not expect loud statements from Powell.
The exchange rate of the GBP/USD pair rose by 10 basis points on Wednesday. Before the start of the American session, the movement's amplitude was 20 points, which is very small. Despite the increased demand for the British pound in recent weeks, the sideways trend persists, and the overall rise of the British currency should be examined under a microscope. For me, it is obvious that the problem of horizontal movement is now not related to the news background. Over the past three months, there have been enough important events—central bank meetings, speeches by central bank officials, and just reports. If all this data cannot take the pound out of the sideways trend and the market trades in the trend, then the problem lies in the market itself.
Today will be Powell's first speech in the US Congress. I would not advise expecting much from the Federal Reserve President. Undoubtedly, important theses will be voiced, but how important will they be? In all his recent speeches, the head of the FOMC repeated the same thing. No one is in a hurry to lower the rate at the Fed; inflation has not slowed down enough to talk about easing monetary policy; the US economy is strong; the labor market is stable and balanced; and more evidence is needed to confirm the trajectory of falling inflation. Based on this, Powell may simply repeat all theses before Congress because inflation has not decreased since his last speech, the economy has not contracted, and labor market and unemployment reports (key ones) will only be released on Friday. Therefore, I do not expect loud statements and believe that the market reaction will not be excessive.
General conclusions.
The wave pattern of the GBP/USD pair still suggests a decline. At this time, I am considering selling the pair with targets below the level of 1.2039 because I believe that wave 3 or c will sooner or later gain momentum. A successful attempt to break through the level of 1.2627 was signaled for sales; however, at this time, I can also highlight a sideways trend with a lower boundary at the level of 1.2500. This level is currently the limit for me in the decline of the British pound. The descending corridor has already been violated, so the British pound may continue to rise for some time, which is another internal wave in the sideways trend.
On a higher wave scale, the picture is similar to the EUR/USD pair, but there are still some differences. The descending corrective section of the trend continues its construction, and its second wave has taken on an extended form – at 61.8% of the first wave. An unsuccessful attempt to break this level may lead to the beginning of the construction of wave 3 or c.
The main principles of my analysis:
- Wave structures should be simple and clear. Complex structures are difficult to play with; they often bring changes.
- If there is no confidence in what is happening in the market, it is better not to enter it.
- There is never 100% certainty in the direction of movement. Do not forget about protective stop-loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
