The wave pattern for GBP/USD remains somewhat ambiguous, though generally manageable. Currently, there's still a strong likelihood of a long-term downward trend forming. Wave 5 has taken a convincing shape, so I consider senior wave 1 complete. If that assumption is correct, wave 2 is still in the process of forming. The first two subwaves of wave 2 appear to be complete. The third may be nearing completion — or already finished.
Recent demand for the pound has been driven solely by the "Trump factor," which continues to be the primary support for the British currency. However, in the longer term (beyond a few days), the pound still lacks fundamental drivers for growth. The stance of the Bank of England and the Federal Reserve has recently shifted in the pound's favor, as the BoE is now also not rushing to cut rates. The current wave structure hasn't been violated yet, but any further rise in the pair would raise significant concerns.
The GBP/USD exchange rate remained flat on Wednesday — just like on Tuesday and Monday. We've been witnessing a sideways trend for almost a month. Were there economic reasons behind it? Yes and no. For example, yesterday there was enough economic data from the EU, the UK, and the U.S. to stir the market a bit. But traders remain inactive — and who can blame them?
The most important reports yesterday were the U.S. ISM Manufacturing PMI and the JOLTS job openings report. To be fair, these aren't reports that must compel aggressive trading. However, the ISM index fell below the 50.0 threshold — a notable development. As a reminder, business activity indices are, to some extent, leading indicators of economic health. A decline indicates that the sector is either stagnating or in recession. Thus, yesterday's data suggested the U.S. manufacturing sector is slipping back into recession. Meanwhile, the JOLTS figure reflects a labor market that's not entirely healthy — and could start weakening under Trump's new policies.
This Friday brings employment and unemployment data, which may provide the U.S. dollar with another opportunity to continue its decline. In my view, what really matters isn't the new tariffs from Trump (which the market has already priced in several times), but actual evidence that the economy is starting to "suffer" under the new president. If such evidence begins to accumulate, demand for the U.S. dollar may resume its decline — even though that would contradict the current wave structure.
General Conclusions
The wave pattern for GBP/USD suggests that the formation of a downward trend segment continues, along with its second wave. At this stage, I would advise looking for new short entries, as the current wave count still implies a continuation of the downtrend that began last autumn. However, how Trump and his policies will further impact market sentiment — and for how long — remains a mystery. The recent rise of the pound looks excessive relative to the wave structure, but I'm still anticipating a decline into the 1.20 area.
At the larger wave scale, the pattern has evolved. We can now assume that a downward segment of the trend is forming, as the previous three-wave upward movement is clearly complete. If that assumption is correct, we should expect to see a corrective wave 2 or b, followed by an impulsive wave 3 or c.
Core Principles of My Analysis:
- Wave structures should be simple and clear. Complex formations are harder to trade and often signal changes.
- If there's uncertainty in the market, it's better to stay out.
- Absolute certainty in price direction never exists. Always use Stop Loss orders.
- Wave analysis can be combined with other forms of analysis and trading strategies.
