The wave analysis for the GBP/USD pair remains quite complex. A successful attempt to break through the 50.0% Fibonacci level in April 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. However, in recent weeks, the pair's decline has been absent, raising doubts about the market's readiness for sales.
In the current situation, my readers can still count on wave 3 or c formation, the targets of which are below the low of wave 1 or a, at the level of 1.2035. Consequently, the pound should decline by at least 600-700 basis points from current levels. With such a decline, wave 3 or c will be relatively small, so I expect a much larger drop in quotes. It may take a lot of time to build the entire wave 3 or c. Wave 2 or b lasted for 5 months and was only a corrective wave. Building an impulse wave may take even more time. The last corrective wave was very lengthy, but it did not stop being corrective. Therefore, I still expect the dollar to strengthen.
Demand for the pound remains consistently high.
The GBP/USD pair rose by 35 basis points on Monday. I do not exclude that by the end of the day, the pair may pull back slightly, and the day may even end with zero change in the exchange rate. However, there are two facts I can note at the end of today. The first is that the market has again increased demand for the pound, quite reasonably, as has often happened before. The second is that it is no longer particularly important why the pound is rising. What matters is that it is rising, which increasingly threatens the integrity of the current wave analysis.
I can still interpret the pair's rise over the past 6-7 weeks as a deep corrective wave, but two problems immediately arise. First, there are no economic grounds for increased demand for the dollar, as statistics from the United States increasingly turn out to be weaker than market expectations. Second, the Bank of England may start easing monetary policy even before the Fed needs to be considered by the market. Therefore, the market does not consider the factor that could help the dollar, while the factor against it is perceived as "manna from heaven." With this scenario, the pound can continue to rise for a long time.
Unfortunately, the wave analysis may not just change to an upward trend segment; it may need clarification. Looking at the higher timeframes, it is almost impossible to identify any clear structure with clear waves over the past half-year. The waves are almost equal to each other or not related to each other. The pound remains a pair that traders would prefer to avoid trading.
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 1.2039 level, as I believe that wave 3 or c has yet to be canceled. Since the pair is trying to form a reversal around the 1.2822 level, not far from the peak of the presumed wave 2 or b, selling the pair can now be considered with initial targets around the 1.2315 level. However, it is very cautious as the market is extremely reluctant to increase demand for the U.S. currency.
On the higher wave scale, the wave pattern is even more revealing. The downward correctional segment of the trend continues to develop, and its second wave has taken on an extended form – at 76.4% of the first wave. An unsuccessful attempt to break through this level could have led to the start of building wave 3 or c, but a corrective wave is currently being formed.
The main principles of my analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play; 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. Remember protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
