The wave analysis for the GBP/USD pair remains quite complex. A successful attempt to break through the Fibonacci level of 50.0% indicated the market's readiness to build a downward wave 3 or c. If this wave indeed continues to develop, the wave pattern will become much simpler, and the threat of complicating the wave analysis will disappear.
As I have already noted, the wave pattern should be simple and understandable to work with. There needs to be more simplicity and understanding in recent months. For a long time, the pair was sideways, and only now is there an opportunity to build a downward impulsive wave.
In the current situation, my readers can count on the construction of wave 3 or c, the targets of which are located below the low of wave 1 or a. Therefore, the pound should decrease by at least another 400-500 basis points from current levels. With such a decrease, wave 3 or c will be relatively small; I expect a much larger decline in quotes. The news background supports the US dollar, and after breaking the level of 1.2469 (50.0% Fibonacci), the psychological blockade has been lifted from the sellers.
Sellers are quick to return to the market.
The GBP/USD pair rate fell by 20 basis points on Tuesday, which is undoubtedly very little to conclude the completion of the upward wave. The current wave analysis suggests a decline in quotes, but in recent weeks, we have only seen growth. And the longer we observe such movement, the more doubts arise about the pound's ability to drop to at least the 1.20 figure, from where it began to build an upward wave in October last year. At the moment, there are no grounds for making corrections to the wave analysis, but the pound has been in the same price range for too long. Few readers like the current state of affairs in the market.
The pair's rate has returned to the levels that I have long considered the lower boundary of the sideways range. There is a high probability of an unsuccessful attempt to break these levels and resume the construction of a downward wave 3 or c. However, another 50-100 basis points upward, and expectations of a decline in the pair will have to be postponed. Therefore, for the US dollar, it is almost the last chance to "grab onto" the market. If the US reports are weak on Wednesday, Thursday, and Friday, the pound's rise will continue, and then the wave analysis will become even more complex.
The probability of transforming wave analysis exists almost always. The question is whether this transformation corresponds to the news background. At the moment, the news background supports the dollar as the Fed is moving further and further away from the moment of the first round of rate cuts. It cannot be said that this process is insignificant for the market. Surely, the market has been busy all winter laying in the price of the March rate cut that the Fed abandoned. Then, the market is expected to ease in June, which will also not happen.
General conclusions.
The wave pattern of the GBP/USD pair still suggests a decline. At the moment, I am still considering selling the pair with targets below the level of 1.2039, as wave 3 or c is beginning to form. A successful attempt to break the level of 1.2472, corresponding to 50.0% Fibonacci, indicates the long-awaited readiness of the market to build a downward wave.
On the larger wave scale, the wave pattern is even more revealing. The downward correctional segment of the trend continues to form, and its second wave has acquired an extended form – at 76.4% of the first wave. An unsuccessful attempt to break this level could have led to the beginning of the construction of wave 3 or c.
The main principles of my analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play out; they often bring changes.
- If there is confidence in what is happening in the market, it is better to avoid entering it.
- There is never 100% certainty in the direction of movement. Do not forget about Stop Loss orders for protection.
- Wave analysis can be combined with other types of analysis and trading strategies.
