The wave analysis for GBP/USD needs to be simplified and clarified. A successful attempt to break above the 50.0% Fibonacci level in April indicated the market's readiness to form a downward wave 3 or C, but since then, we've only seen upward movements. If this wave does resume its construction, then the wave pattern will become much simpler and the threat of complication of the wave marking will disappear. However, in recent weeks, there has been no decrease in the instrument at all, which again makes us doubt the readiness of the market for sales.
In the current situation, my readers can still anticipate the formation of wave 3 or C, with targets below the low of wave 1 or A, around the 1.2035 mark. Therefore, the pound should decline by at least 700-800 basis points from current levels. With such a decline, wave 3 or C would be relatively small, so I expect a much larger drop in quotes. It may take a lot of time to complete the entire wave 3 or C. Wave 2 or B took 5 months to form, and that was just a corrective wave. The last corrective wave was very prolonged, but the recent unsuccessful attempt to break above the 1.2822 mark allows us to look downwards again.
The market has awakened, and demand for the US dollar has increased slightly
The GBP/USD exchange rate decreased by 15 basis points on Tuesday. The decline could have been larger and may still increase further, as just an hour ago, the US retail sales report came out, which was 0.1% worse than market expectations. I think 0.1% is too small for the US dollar to drop by 50-60 basis points. Therefore, it is more likely that the dollar's decline will have already ended when this review is published. Nevertheless, overall demand for the US dollar continues to grow slowly and reluctantly. I am still determining whether the formation of upward wave 2 or B is completed. It looks that way, but the pound has presented quite a few surprises recently.
I also want to remind you that the UK will release its inflation report tomorrow. Undoubtedly, I do not expect a strong market reaction to this report, as a month earlier, when inflation decreased by 0.9%, the market's reaction was around 50 points at best. Therefore, the pound may rise by 50 points, which will not affect the current wave analysis. The Bank of England meeting is even more important, and surprises are possible there. The BoE could lower the interest rate as early as Thursday, but the likelihood is low. If the meeting proceeds according to the base scenario, the market can only react to statements from Andrew Bailey. They may be dovish, but the market must pay them attention.
General Conclusions:
The wave pattern for the GBP/USD pair still suggests a decline. I am still considering selling the pair with targets below the 1.2039 mark, as wave 3 or C has not yet been canceled. Since the pair reversed around the 1.2822 mark, not far from the peak of the presumed wave 2 or B, selling the pair can be considered with initial targets around the 1.2315 mark. But very carefully, as it is still difficult to be sure of a change in the market mood to bearish.
On a larger wave scale, the wave pattern is even more indicative. The descending corrective phase of the trend continues to develop, and its second wave has taken on an extended form – reaching 76.4% of the first wave. An unsuccessful attempt to break through this mark could lead to the beginning of building 3 or c, but a corrective wave is currently being built.
The basic principles of my analysis:
1) Wave structures should be simple and understandable. Complex structures are difficult to play out, they often bring changes.
2) If you are not sure what is happening in the market, it is better not to enter it.
3) There is no absolute certainty in the direction of movement and there can never be. Do not forget about Stop Loss protection orders.
4) Wave analysis can be combined with other types of analysis and trading strategies.
