The wave pattern for GBP/USD remains quite complex and ambiguous. A successful attempt to break through the 50.0% Fibonacci level in April indicated the market's readiness to form a downward wave 3 or c, but we have only seen an increase since then. If this wave does resume formation, the wave pattern will become much simpler, and the threat of complicating the wave structure will disappear. However, in recent weeks, the instrument's decline has been quite weak, with sellers unable to break even the nearest 38.2% Fibonacci level successfully.
In the current situation, my readers can still expect wave 3 or c formation, with targets located below the low of wave 1 or a, at the mark of 1.2035. Consequently, the pound should decrease by at least another 700-800 basis points from the current levels. If such a decline occurs, wave 3 or c will be relatively small, so I anticipate a much larger drop in quotes. The formation of wave 3 or c may take a long time. Wave 2 or b took five months to build, and it was only a corrective wave. The last corrective wave 2 or b in 3 or c was very long, but the unsuccessful attempt to break the 1.2822 mark allows us to look downward again.
Monday Did Not Bring Anything New
The GBP/USD exchange rate increased by several dozen points on Monday. This movement might seem strange to some, as no significant events or news preceded it. However, the instrument moved similarly throughout the previous week, with very few news releases. A week ago, I mentioned that the 1.2627 mark is very important for the instrument; without closing quotes below this level, we will not see a further decline. So far, sellers are once again showing their weakness. Undoubtedly, this week's news background may give them strength, but Monday showed only one thing – the market is still in no hurry to reduce demand for the pound. We can speculate endlessly about why demand for the pound is not falling despite most factors supporting this scenario, but these discussions will lead nowhere. A breakout of the 1.2627 mark is needed to maintain the integrity of the current wave markup.
Today, the first report of the week was released in the UK – manufacturing activity for June. The index dropped to 50.9 points, but the market was prepared for this value. In the second half of the day, demand for the pound decreased slightly. However, we still have to review the ISM index in the US, a weak value that could return the instrument to an upward trend.
General Conclusions
The wave pattern of the GBP/USD instrument still suggests a decline. I am still considering selling the instrument with targets below the 1.2039 mark, as wave 3 or c has not yet been canceled. Since the instrument reversed around the 1.2822 mark and near the peak of the presumed wave 2 or b, sales can be considered with initial targets around the 1.2315 mark. However, proceed cautiously, as confidence in the market's shift to a "bearish" sentiment will come after a successful attempt to break through the 1.2627 mark.
On the larger wave scale, the wave pattern is even more telling. The downward corrective section of the trend continues its formation, and its second wave has extended to 76.4% of the first wave. An unsuccessful attempt to break this mark could have led to the beginning of wave 3 or c, but currently, a corrective wave is forming.
The main principles of my analysis:
- Wave structures should be simple and clear. Complex structures are difficult to play out and often change.
- If there is no confidence in what is happening in the market, it is better not to enter it.
- There is never a 100% certainty in the direction of movement. Do not forget about protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
