The GBP/USD exchange rate decreased by 90 basis points on Tuesday. The wave structure of the GBP/USD pair remains quite complex and ambiguous. For a while, the wave pattern looked quite convincing and suggested the formation of a downward wave set with targets below the 23 figure. However, in practice, the demand for the US currency increased too much to realize this scenario.
Currently, the wave structure has become completely unreadable. I would like to remind you that, in my analysis, I try to use simple structures, as complex ones have too many nuances and ambiguous moments. Right now, we see an upward wave that overlaps a downward wave. This downward wave, in turn, overlapped the previous upward wave, which also overlapped the previous downward wave. The only assumption that can be made is an expanding triangle with the upper point around the 30 figure and the balancing line around the 26 figure. The upper line of the triangle has been reached, and the unsuccessful attempt to break through it indicates the market's readiness to form a downward set of waves. The unsuccessful attempt to break through the 1.2822 mark, which corresponds to 23.6% Fibonacci, suggests a possible resumption of the decline in the near future.
The Bank of England will continue to pull the pound down. The GBP/USD exchange rate decreased by 90 basis points on Tuesday. The amplitude of movements for the fourth consecutive day has been pleasing. I am even more pleased with the pair's decline towards the "balancing line." Since this line is about 80-100 basis points away, let's discuss what scenario might follow.
In my opinion, the pair should form at least a three-wave corrective structure. However, the first wave of this structure already looks substantial. Consequently, the pound has the potential to decline much lower than the 1.26 level. I fully admit that the three-wave structure could end around the 1.23 level or even around the 1.21 level. I have mentioned these targets before, but honestly, I did not expect the pound to rise after June 12.
Yesterday, the US dollar also received news support. Few noticed the ISM services index, as many were too busy with panic actions, but the ISM index was better than expected. This is one of those positive reports that the market often overlooks, focusing only on data that confirms an impending recession. However, the U.S. economy grew by 2.8% in the second quarter, and business activity in the services sector is increasing. In my opinion, recession expectations are greatly exaggerated. As are the expectations for the Fed rate cut in September, but this is no longer surprising.
According to the CME FedWatch tool, the probability of a 50 basis point rate cut on September 18 is now 76.5%, and a 25 basis point rate cut is 23.5%. The market does not even consider the option of keeping the interest rate unchanged.
General Conclusions:
The wave structure of the GBP/USD pair still suggests a decline. If an upward trend section began on April 22, it has already acquired a five-wave form. Therefore, in any case, we should now expect at least a three-wave correction. The unsuccessful attempt to break through the upper line of the triangle indicates the market's readiness to form a downward set of waves. In my opinion, in the near future, it is worth considering selling the pair with targets around the 1.2627 mark, which corresponds to 38.2% Fibonacci.
On a larger wave scale, the wave picture has transformed. We can now assume the formation of a complex and extended upward corrective structure. At the moment, it is a three-wave structure, but it may transform into a five-wave structure, which will take several months or more to complete.
Basic Principles of My Analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play out and often involve changes.
- If there is no confidence in what is happening in the market, it is better not to enter it.
- There is never 100% certainty in the direction of movement. Do not forget about protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
