The wave analysis for the GBP/USD pair remains quite complex, but it may become simpler in the coming weeks. A successful attempt to break through the Fibonacci level of 50.0% indicates the market's readiness to build a downward wave 3 or c. If this wave continues to develop, the wave pattern will become much simpler, and the threat of complicating the wave analysis will disappear.
As I noted, the wave pattern should be simple and understandable. However, simplicity and understanding have been lacking in recent months. For a long time, the pair has been in a sideways movement and only now has real chances of building an impulsive wave that has emerged.
In the current situation, my readers can only hope for the formation of wave 3 or c, the targets of which are located below the low of wave 1 or a. Therefore, the pound should decline by another minimum of 500-600 basis points. The news background supports the US currency, and after breaking through the level of 1.2469 (50.0% Fibonacci), the psychological barrier for sellers has been lifted.
The pound may continue to decline today.
The GBP/USD pair rose by 35 basis points on Wednesday. The only report of the day released so far is inflation in the UK. And it must be said that the market had the right to react to it as it eventually did. The Consumer Price Index fell in March to 3.2% annually, and core inflation was 4.2%, also showing a slowdown. One might ask: why didn't demand for the British currency continue to decline? The answer is simple: the market expected an even greater slowdown in consumer prices.
The market tends to get ahead and expect too much from central banks or individual indicators. So today, inflation and core inflation have decreased, which means that the Bank of England is one step closer to its first monetary policy easing. At the same time, the Fed has taken two steps back, and now the British regulator may start lowering rates earlier. Recall that at the beginning of the year, the market expected the Bank of England to start lowering rates by the fourth quarter. However, it has already become clear in April that the Fed's rates may start falling by the fourth quarter, and the Bank of England's rates may start falling this summer.
Based on this, the pound has again become a hostage to overly high market expectations. It has started to build a new downward wave, but now it needs this wave to develop. If the market continues to believe that inflation should decrease by 0.5% per month, it will constantly be disappointed. Demand for the British currency continues to decline very reluctantly. The entire wave pattern may be complicated again, and we may not see a new upward wave towards the 1.29 figure within the extended 2 or b.
General Conclusions
The wave pattern of the GBP/USD pair still suggests a decline. At this time, I am still considering selling the pair with targets below the 1.2039 mark, as wave 3 or c is beginning to form. A successful attempt to break through the 1.2472 level, which corresponds to 50.0% Fibonacci, indicates the long-awaited readiness of the market to build a downward wave.
On a higher wave scale, the wave pattern is even more eloquent. The downward corrective phase of the trend continues to develop, and its second wave has acquired an elongated shape - at 76.4% of the first wave. An unsuccessful attempt to break through this level could have led to the beginning of the formation of 3 or c.
The main principles of my analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play, and they often change.
- If there is confidence in what is happening in the market, it is better to avoid entering it.
- There is never a hundred percent certainty in the direction of movement. Remember protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
