For GBP/USD, the wave markup continues to indicate the formation of an upward wave structure, but over the past few weeks it has taken on a complex and ambiguous form. The pound has fallen too sharply recently, so the trend segment starting from August 1 now looks uncertain. The first thing that comes to mind is the complication of the assumed wave 4, which will take on a three-wave form, with each of its sub-waves also structured into three waves. In this case, a decline of the pair towards the 1.31 and 1.30 levels should be expected.
However, there is a positive aspect – the wave structures of the euro and the pound have once again aligned. The European currency will likely also decline to form three convincing three-wave structures as part of wave 4. I currently see no other alternative scenarios with a clear structure. The news background has greatly hindered the realization of the most straightforward scenario, while in recent weeks the market has actively been selling the pair on rather questionable (for this) news.
It should be remembered that at present much in the foreign exchange market depends on Donald Trump's policies. The market fears a softening of the Fed's policy due to pressure from the U.S. president, while Trump continually introduces new tariff packages, pointing to the continuation of the trade war. Consequently, the news background remains unfavorable for the dollar.
The GBP/USD pair rose by 50 basis points on Friday, which to some extent justifies the market's trading over the past two weeks. This week, demand for the U.S. dollar grew steadily, despite there being only two significant events in the U.S. and none in the UK. What were these two significant events?
The FOMC minutes. It should be recalled that these are released with a delay of about three weeks, meaning the information contained in them can by no means be considered current. A simple example – on September 17, the Fed had access to all the necessary data to make a rate decision. By October 1, the situation had changed, as the Nonfarm Payrolls report, unemployment rate, and consumer price index were not released on time due to the U.S. government "shutdown." Thus, on October 29 the Fed will have to make a decision based on a completely different fundamental backdrop. Therefore, the FOMC minutes (especially under the current circumstances) are of no importance.
As for Jerome Powell's speech, he once again stated that economic data is the foundation for the FOMC Committee. Decisions will only be made based on statistics. From this perspective, even another round of monetary policy easing is not guaranteed. Perhaps markets interpreted these comments in a "hawkish" way, but it should be noted that Powell has long adhered to this approach. Therefore, his rhetoric has not changed.
As a result, I can say that there were no significant reasons for the strengthening of the U.S. currency, which contradicts the wave markup. Nevertheless, what happened has happened. Now we have to work with an updated wave structure, which is objectively more complicated than the previous one, but still implies the pair's growth.
General conclusions.
The wave picture of the GBP/USD pair has changed. We continue to be dealing with an upward, impulsive trend segment, but its internal wave structure is becoming more complex. Wave 4 is taking on a complex three-wave form, with a structure much longer than wave 2. Since we are now observing the formation of another corrective three-wave structure, it may be completed in the near future. If this assumption is correct, the pair's upward movement within the global wave structure may resume with its initial targets.
The higher-scale wave markup looks almost perfect, even though wave 4 has surpassed the peak of wave 1. However, let me remind you that perfect wave markups exist only in textbooks. In practice, everything is much more complicated. At this point, I see no grounds to consider alternative scenarios to the upward trend segment.
The main principles of my analysis:
- Wave structures should be simple and clear. Complex structures are hard to trade and often bring changes.
- If there is no confidence in what is happening in the market, it is better to stay out of it.
- One can never have 100% certainty about the direction of movement. Always remember protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
