The wave pattern for GBP/USD continues to indicate the formation of an upward wave pattern, but over the past few weeks, it has become complex and ambiguous. The pound has fallen too sharply, making the trend segment that began on August 1 appear uncertain. The first thought that comes to mind is a complication of the presumed wave 4, which may take on a three-wave form, with each sub-wave containing its own three smaller waves. In this case, a decline of the pair toward the 1.31 and 1.30 levels can be expected.
The downward wave structure that began on September 17 appears to be five-wave, though it could theoretically become much longer and more complex. Personally, I continue to expect a rise in quotes, regardless of the wave structure. In my view, the news background is currently so one-sided that it's hard to expect anything else. However, in recent weeks, buyers have shown no initiative, despite having regular fundamental support.
At this point, much in the currency market depends on Donald Trump's policies. The news background remains highly unfavorable for the U.S. dollar. I view the current pause in the dollar's decline as merely that — a pause. Therefore, the question every trader should be asking is: "When will the U.S. currency's fall resume?"
The GBP/USD rate fell by 60 basis points on Wednesday, following a 70-point decline the day before. Naturally, the question arises: what caused such a sharp drop in demand for the pound? If you look at this week's economic calendar, you might immediately close it again — there's nothing of real interest there. But then UK Chancellor of the Exchequer Rachel Reeves came to the "rescue."
In her latest interview, Reeves praised the European Union and implied that the British people's choice in the 2016 referendum was a mistake — remarks that sparked another wave of emotion in the markets. It's worth recalling that Ms. Reeves has previously been blamed for triggering declines in the pound. As we can see, each new public appearance she makes is treated by market participants like a red flag to a bull.
Overall, I don't see anything inherently negative for the pound in the UK's gradual geopolitical reorientation. Nor is there any reason to believe that this direction has changed dramatically. The UK simply wants to restore certain economic ties with the EU, which would be mutually beneficial. There is no talk of rejoining the European Union. However, as I've already mentioned, for the market, Rachel Reeves herself has become enough of a reason to dump the pound "just in case."
I cannot call the recent (and not-so-recent) decline of the pound entirely logical. But can one really argue with the market?
General Conclusions
The wave pattern for GBP/USD has changed. We are still dealing with an upward, impulsive trend segment, but its internal wave structure is becoming more complex. Wave 4 has taken on a three-wave form, and its length is several times greater than that of wave 2. The current downward corrective phase is approaching completion, though it could extend further.
If this scenario plays out, the pair's upward movement within the global wave structure could resume, with initial targets around the 1.38 and 1.40 levels. However, for now, the correction is still ongoing.
The larger-scale wave pattern looks nearly ideal, even though wave 4 has moved beyond the high of wave 1. But remember: perfect wave patterns exist only in textbooks — in practice, things are far more complex. At this point, I see no reason to consider alternative scenarios to the upward trend.
Key Principles of My Analysis
- Wave structures should be simple and clear. Complex ones are difficult to trade and often change.
- If you're unsure about market conditions, don't enter.
- Absolute certainty about price direction is impossible. Always use Stop Loss orders.
- Wave analysis can be combined with other forms of analysis and trading strategies.
