The wave structure of GBP/USD remains complex and uncertain. Initially, the wave pattern suggested the formation of a downward wave set with targets below the 1.2300 level. However, demand for the British pound rose too strongly for this scenario to play out, and it continues to rise.
At this point, the wave structure has become more intricate. I should remind you that I typically rely on simpler structures in my analysis, as complex structures often introduce too many nuances and ambiguities. We have now seen another upward wave that has pushed the price beyond the triangle's boundaries. The current upward wave set, which likely began on April 22, could extend further. The market seems unlikely to settle until all stages of the Fed's rate cuts are priced in. Recently, a three-wave corrective structure formed, which may be part of a broader upward trend. If this is true, the price increase could continue for several more months.
The GBP/USD rate increased by 80 basis points on Monday. Demand for the pound continues to grow after last Thursday's ECB announcement of monetary policy easing. It's hard to say which is more ironic: "the pound is rising due to the ECB meeting" or "the pound is rising on policy easing." Nonetheless, this suggests we may see more surprises on Wednesday and Thursday—not from the Bank of England or the Fed, but from the market. In 2024, the market has been pricing in various scenarios and forecasts. It may even be uncertain about which factors have already been priced in and which remain unaccounted for. Still, if the euro can rise on the ECB's rate cut, why can't the dollar rise on a Fed rate cut? Or does the pound fall on maintaining the status quo?
Of course, it's easy to explain the current dollar weakness—the Fed is preparing for its first policy easing, which has reduced demand for the U.S. currency. But what will happen when the easing program begins? It's simple to explain movements after the fact, but predicting what will happen next with the dollar and the pound is much harder. The wave structure has become increasingly complex in 2024, meaning the upward trend could extend further. This week, the market will likely reveal which factors have already been priced in. We will see this through the market's reaction to central bank meetings. For now, it's best to wait and avoid hasty decisions.
General Conclusions
The wave structure of GBP/USD still suggests a downward movement. If the upward trend started on April 22, it has already formed a five-wave pattern. The corrective wave has now formed a three-wave structure, but in my view, it is insufficient to suggest the formation of a new upward trend. Selling remains more appealing at this point, but clear signals are needed, and currently, there are none.
On a larger wave scale, the wave structure has become more complex. We can now anticipate the development of a prolonged and complicated upward corrective structure. At present, it's a three-wave pattern, but it could evolve into a five-wave structure, which could take several months or longer to complete.
Key Principles of My Analysis:
- Wave structures should be simple and clear. Complex structures are difficult to interpret and are often subject to change.
- If there's uncertainty in the market, it's better not to enter.
- There can never be 100% certainty in market direction. Always use protective Stop Loss orders.
- Wave analysis can be combined with other forms of analysis and trading strategies.
