The wave structure for GBP/USD remains quite complex and needs to be clarified. Around the 1.2822 mark, which corresponds to 23.6% Fibonacci retracement and is located near the peak of the supposed wave 2 or b, a downward wave began to form several weeks ago but didn't last long. I assumed this was the long-awaited wave 3 or c, but a failed attempt to break the 1.2627 mark, which equates to 38.2% Fibonacci retracement, pushed the instrument back to last year's highs.
Currently, the wave structure has become completely unreadable. I use simple structures in my analysis, as complex ones have too many nuances and ambiguous moments. At the moment, we see an upward wave overlapping a downward wave, which in turn overlaps a prior upward wave, and so on. The only thing that can be assumed is an expanding triangle with a peak around the 30th figure and a balancing line around the 26th figure.
Inflation in the UK Has Stabilized
The GBP/USD rate decreased by several dozen basis points throughout Wednesday and approached the upper line of the expanding triangle. From this line, there is a high probability of a rebound and reversal. Today's news background did not suggest an increase in the pound, but the market decided not to stop halfway and continued to raise demand for the pound. The consumer price index in the UK did not meet market expectations, which has long lost interest in inflation. The indicator remained at 2.0% year-on-year, and core inflation remained at 3.5% in June. Accordingly, the news background did not support buyers today.
However, any report and indicator can be viewed from different angles. If inflation did not decrease in the reporting month, the Bank of England might doubt that the indicator will slow down. In this case, the expected rate cut might be postponed from August to September. However, I don't find this explanation convincing because it can be applied to any report. Inflation in the UK has dropped to the target level, which is the main thing. The Bank of England has every reason to cut rates, and this is the main thing.
Based on the above, I still expect a decline in the British currency. However, in the current circumstances, signals indicating the end of the upward wave, which began in April, would be very helpful.
General Conclusions
The wave pattern of the GBP/USD instrument still suggests a decline, but it has already undergone some changes. I want to take my time to conclusions, which could lead to mistakes. It's important to understand how far the market will push the pound upward. If a new upward trend section started on April 22, it has already taken on a five-wave appearance. Therefore, in any case, a minimum three-wave correction should now be expected. A failed attempt to break the upper line of the triangle may indicate readiness for a downward wave set. This is a good point for selling.
On the larger wave scale, the wave pattern is even more eloquent. The downward corrective trend section continues its formation, and its second wave may take on a 100.0% appearance of the first wave. The internal wave structure of this wave is completely unreadable.
Main Principles of My Analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play out, and they often change.
- If one lacks confidence in the market's performance, it's better not to enter it.
- The direction of movement is never 100% certain. Remember about protective Stop-Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
