The wave pattern for GBP/USD remains quite complex and needs to be clarified. Around the 1.2822 mark, which corresponds to 23.6% Fibonacci, located near the peak of the supposed wave 2 or B, a downward wave began forming a few weeks ago. I assumed this was the long-awaited wave 3 or C, but an unsuccessful attempt to break through the 1.2627 mark, equivalent to 38.2% Fibonacci, pushed the instrument back to its highs for the last year. The entire wave pattern is once again threatened with transformation, but I can't say it will turn into an upward trend segment. Regardless of the pound's behavior, it has no medium-term growth potential. The dollar has regularly been under pressure in recent months due to American reports. If these reports didn't occasionally fail, we might have already seen the instrument below the 26th figure.
At the moment, wave 3 or C can continue forming. A new unsuccessful attempt to break through the 1.2822 mark, plus a MACD divergence, may lead to the completion of the corrective wave. A successful attempt to break through the peak from June 12 and the peak from March 8 will necessitate refining the wave pattern.
The pound returned to the 1.282 mark
The GBP/USD rate stayed the same on Tuesday as of this review. For the second day in a row, the market can slightly correct the instrument downwards, but it doesn't even have enough strength for that. Despite another reversal pattern in the form of a divergence between the two wave peaks, the market still does not increase demand for the US dollar. Last week, such actions were expected, but this week, they are surprising.
Even if we expect an upward trend segment in the coming months, the instrument should decrease slightly first and then make a successful attempt to break through the 1.2822 mark. However, the market is holding its breath and waiting. Today, Fed Chairman Jerome Powell will speak before the Senate Banking Committee and tomorrow before the House Financial Services Committee. On Thursday, we will have the US inflation report. Recall that the last two inflation reports indicated a slowdown, as noted by Jerome Powell himself. Each time, demand for the US currency decreased by 60-80 points. If it is revealed on Thursday that inflation has fallen to 3.1%, this could trigger a new drop in the US dollar, completely contradicting the current wave pattern. The pound is on the verge of transforming the wave pattern.
General Conclusions
The wave pattern for GBP/USD still suggests a decline but remains ambiguous. I am still considering selling the instrument with targets below the 1.2039 mark, as wave 3 or C has not been canceled yet. A new reversal may form around the 1.2822 mark and near the peak of the supposed wave 2 or B, allowing for further declines in the pound. However, there is no confidence in a shift to a "bearish" market sentiment at this time. A successful attempt to break through the 1.2822 mark will almost cancel the current wave pattern.
On a larger wave scale, the wave pattern is even more telling. The downward corrective trend segment continues to build, and its second wave has taken on an extended form—76.4% of the first wave. An unsuccessful attempt to break through this mark could have led to the start of wave 3 or C, but a corrective wave is currently forming.
The main principles of my analysis:
- Wave structures should be simple and clear. Complex structures are difficult to play out; they often change.
- If there is confidence in what is happening in the market, it is better to avoid entering.
- There can never be 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.
