The wave structure for GBP/USD remains quite complex. A successful attempt to break the 50.0% Fibonacci level in April indicated the market's readiness to form a downward wave 3 or c. If this wave continues to develop, the wave pattern will become much simpler, eliminating the threat of further complications. However, the pair has remained strong in recent weeks, raising doubts about the market's readiness for sales again.
In the current situation, my readers can still expect the formation of wave 3 or c, targeting levels below the low of wave 1 or a, at 1.2035. Therefore, the pound should decrease by at least 600-700 basis points from the current levels. Such a decline would make wave 3 or c relatively small, so I expect a much larger drop in quotations. Constructing the entire wave 3 or c could take a lot of time. Wave 2 or b took 5 months to form, and it was just a corrective wave. Building an impulse wave could take even longer. The last corrective wave has been very extended and still hasn't finished forming, threatening the entire wave structure.
Demand for the Pound Remains Consistently High
The GBP/USD rate increased a bit more on Wednesday. It has been increasing "a bit more" almost every day, which no longer surprises me. This week, the news background has been creating conditions for market participants to sell the US dollar daily. On Monday, the ISM Manufacturing PMI unexpectedly came in weaker than market expectations. On Tuesday, the JOLTs report on job openings in the US fell short of forecasts. Today, the ADP report on new jobs created in a month was weaker than expected. Consequently, the US currency is reasonably declining. However, over the past two months, there haven't always been reasons for the market to reduce demand for the dollar, and the current wave is still corrective.
Today, the UK released the final services PMI for May. The final value matched the preliminary estimate, so there was no market reaction. Later in the US, the ISM Services PMI for May will be released. If it turns out weaker, we all know what will happen. Tomorrow is the ECB meeting, which is easy to predict, but the market reaction is hard to anticipate. If rates are lowered, the euro will retreat slightly and may drag the pound down with it. However, this event will not affect the market's "bullish" sentiment. Only Christine Lagarde can slightly cool the buyers if she announces that the regulator does not plan to conduct a round of easing at every meeting.
General Conclusions
The wave pattern for GBP/USD still suggests a decline. At this time, I am still considering selling the pair with targets below 1.2039, as wave 3 or c has not been canceled yet. Since the pair is attempting to reverse around 1.2822, which is also near the peak of the supposed wave 2 or b, sales can be considered with initial targets around 1.2315. But be very cautious, as the market is extremely reluctant and rarely increases demand for the US dollar.
The wave pattern is even more telling on a larger wave scale. The downward corrective section of the trend continues to build, with its second wave extending to 76.4% of the first wave. An unsuccessful attempt to break through this level could have led to the start of wave 3 or c, but a corrective wave is currently forming.
Basic Principles of My Analysis:
- Wave structures should be simple and clear. Complex structures are difficult to trade and often undergo changes.
- If there is no confidence in what is happening in the market, it's better to stay out.
- There is never 100% certainty in the direction of movement. Always use protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
