The wave structure for GBP/USD remains quite complex and very ambiguous. Around the level of 1.2822, which corresponds to 23.6% Fibonacci, located near the peak of the supposed wave 2 or b, a downward wave began forming a few weeks ago, but it didn't last long. I assumed this was the long-awaited wave 3 or c, but a failed attempt to break through the level of 1.2627, which corresponds to 38.2% Fibonacci, pushed the instrument back to the highs of the last year.
Currently, the wave structure has become completely unreadable. Let me remind you that in my analysis, I try to use simple structures since complex ones have too many nuances and ambiguous moments. At present, we see an upward wave overlapping a downward one, which in turn overlapped the previous upward wave, which overlapped the previous downward wave. The only thing that can be assumed is an expanding triangle with a top around the 30 figure and a balancing line around the 26 figure.
The GBP/USD rate hardly changed on Monday. Today, Jerome Powell is supposed to speak, but the FOMC President has recently had plenty of opportunities to voice his thoughts on monetary policy. Last week, it became known that inflation in the US slowed to 3%, so Powell's rhetoric may become even softer. But what does this mean for the dollar? Only that demand for it will start to fall even more rapidly. The market already prices in a 90% probability of a rate cut in September. If Powell starts hinting at the possibility of such a scenario, the market will begin selling the dollar even more. However, the dollar keeps falling even without this, so Powell's speech will change nothing.
On the other hand, I consider Monday's speech by BoE member Swati Dhingra significant. The Bank of England official stated that the threat of strong inflation growth is no longer present as demand in the UK has dropped significantly. Mr. Dhingra said that now is the time to start normalizing monetary policy and stop lowering the standard of living for Britons. Let me remind you that at the last Bank of England meetings, two policymakers regularly voted for easing, but they were not supported by their seven colleagues. Nevertheless, now we hear open statements that it is time to cut the interest rate. Will the market respond to this by selling the pound? I will say this: on Monday, Dhingra's words had no effect. But I still believe in the 30 figure, around which the upper line of the expanding triangle passes. It can turn the instrument downwards.
General Conclusions
The wave pattern of the GBP/USD instrument still suggests a decline, but it has already undergone some changes. I do not want to rush to conclusions as this can lead to errors. We need to understand how far the market is willing to push the pound upwards. If a new upward trend section started on April 22, it has already acquired a five-wave form. Consequently, in any case, we should now expect at least a three-wave correction. A failed attempt to break through the upper line of the triangle may indicate readiness for a downward set of waves. In my opinion, this is a good point for sales.
On a larger wave scale, the wave picture is even more eloquent. The downward corrective section of the trend continues its formation, and its second wave may take the form of 100.0% of the first wave. The internal wave structure of this wave is completely unreadable.
The Basic Principles of My Analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play out; they often change.
- If you are not sure about what is happening in the market, it is better not to enter it.
- There can never be 100% certainty in the direction of movement. Do not forget about protective orders such as Stop Loss.
- Wave analysis can be combined with other types of analysis and trading strategies.
