The wave pattern for GBP/USD remains quite complex. A successful attempt to break the 50.0% Fibonacci level in April indicated the market's readiness to form a downward wave 3 or c. If this wave continues to develop, the wave pattern will become much simpler, eliminating the threat of further complexity. However, the pair has remained strong in recent weeks, causing renewed doubts about the market's readiness for sales. The downward wave 3 or c could be very prolonged, like all previous waves of the current, still descending trend segment.
In the current situation, my readers can still count on wave 3 or c formation, with targets below the low of wave 1 or a, at the level of 1.2035. Therefore, the British pound should decrease by at least 600-700 basis points from its current levels. With such a decline, wave 3 or c would be relatively small, so I expect a greater fall in quotes. Building the entire wave 3 or c may take a long time. Wave 2 or b took 5 months to form, and it was only a corrective wave. The formation of an impulsive wave could take even longer.
Buyers aren't giving the dollar a chance
The GBP/USD exchange rate increased by 25 basis points on Friday. I can only say one thing about today that describes everything currently happening with GBP/USD. This morning, a retail sales report was released in the UK. The figures were as follows. Retail sales volume in April decreased by 2.3% month-on-month, compared to market expectations of -0.4%. Retail sales excluding fuel decreased by 2% against market expectations of -0.6%. Thus, these two indicators performed about 3-4 times worse than the market expected. Demand for the British pound did not decrease even by 20 points. Such market behavior shows reluctance to get rid of the British currency, no matter what happens.
Based on this, an equally strange situation has developed for GBP/USD. The wave pattern indicates a downward trend segment, and the news background in the US is at least no worse than in the UK. However, demand continues to grow only for the British pound. Certainly, the market may want to complete the formation of the upward corrective wave more convincingly, but this wave has already become too prolonged. Further increases in the pair may require adjustments to the wave pattern.
Overall Conclusions
The wave pattern for GBP/USD still suggests a decline. I am still considering selling the pair with targets below the 1.2039 level, as I believe Wave 3 or c still needs to be canceled. A successful attempt to break the 1.2625 level, which corresponds to 38.2% by Fibonacci from above, would indicate the possible completion of the internal corrective wave within 3 or c, which now looks like a classic three-wave structure.
On a higher wave scale, the wave pattern is even more indicative. The downward corrective segment of the trend continues to form, and its second wave has taken a prolonged form—76.4% of the first wave. An unsuccessful attempt to break this level could have led to the start of wave 3 or c, but currently, a corrective wave is being formed.
Key Principles of My Analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play out and often change.
- If there is confidence in what is happening in the market, it is better to avoid entering.
- There is never 100% certainty in the direction of movement. Remember protective orders like Stop Loss.
- Wave analysis can be combined with other types of analysis and trading strategies.
