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21.09.2023 06:22 PM
Analysis of GBP/USD. September 21st. A second surprise from the Bank of England

For the pound/dollar pair, the wave analysis remains quite simple and clear. The construction of the upward wave 3 or C has been completed, and the building of a presumably new downward trend section has begun. Theoretically, it could still be wave D, but this probability is close to zero. There are no grounds for the British currency to resume its upward movement, so I do not consider this scenario. The entire upward trend section may still take on a five-wave structure if the market finds new compelling reasons for long-term purchases. So far, I do not see any such reasons.

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The internal wave structure of the first wave of the new trend section looks complex, and it is difficult to identify five waves within it. However, five waves are visible in the euro, and an unsuccessful attempt to break through the 1.0636 mark, equivalent to 100.0% on the Fibonacci scale, has been made. If the construction of the bearish wave pattern is completed in the euro, there is an 80% probability it will also be completed in the pound. However, today, the pair successfully attempted to break through the 1.2314 mark, corresponding to 61.8% on the Fibonacci scale.

The Bank of England "made a chess move."

The exchange rate of the pound/dollar pair fell by 50 basis points on Thursday. The drop in the British currency could have been much more significant because, for the second time in the last few months, the Bank of England has presented a real surprise. Two meetings ago, it unexpectedly raised the rate by 50 basis points at once, and today, it refrained from tightening, although most market participants expected an increase of 25 points. The interest rate remained at 5.25% (lower than the Fed's rate), and demand for the British currency has decreased even further because inflation is far from the target level, and the Bank of England is already sending clear signals of readiness to conclude the tightening process.

By the way, yesterday's results of the FOMC meeting were not as favorable for the dollar as today's Bank of England decision. After all, the FOMC did not raise the rate and was not expected to do so. The market also did not expect tightening. However, demand for the US dollar still increased. Today, the Bank of England stopped but stopped temporarily. The rate will likely rise one more time this year, and it turns out that all three central banks may raise the rate one more time over the remaining two meetings. If this assumption is correct, none of the currencies currently have an advantage over their "colleagues." And none of the regulators can influence the wave pattern to change dramatically.

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Based on everything mentioned above, the first wave of the bearish trend section is nearing completion or has already been completed. I recommend being cautious with selling since a correctional upward wave may begin soon.

Generally, the wave pattern of the pound/dollar pair implies a decrease within a new downward trend section. There is a risk of completing the current downward wave if it is wave D, but we are currently observing the construction of the first wave of the descending section. At most, the British pound can expect wave 2 or B construction in the near future. I would be cautious about selling as a corrective upward wave may begin shortly.

The picture is similar to the euro/dollar pair on a larger wave scale, but there are still some differences. The descending correctional trend section has been completed, and the construction of a new ascending one is ongoing, which may already be completed or take on a full-fledged five-wave structure.

Chin Zhao,
Analytical expert of InstaForex
© 2007-2025
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