The wave pattern for GBP/USD remains quite complex. A successful attempt to break through the 50.0% Fibonacci level in April indicated the market's readiness to form a downward wave of 3 or C. If this wave continues to develop, the wave pattern will become much more straightforward, eliminating the threat of further complications. However, the lack of a decline in the instrument in recent weeks raises doubts about the market's readiness for sales. The downward wave 3 or C could be extended, similar to the previous waves of the current still-declining trend segment.

In the current situation, my readers can still anticipate wave 3 or C formation, with targets below the low of wave 1 or A at 1.2035. Consequently, the pound must 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 quotes. Building the entire wave 3 or C could take a long time. Wave 2 or B took five months to form, and this was just a corrective wave. Constructing an impulsive wave could take even more time.

Buyers Are Giving the Dollar No Chance

The GBP/USD rate increased by another 15 basis points on Wednesday. Throughout the day, the amplitude of movements was again low, but a sharp upward spike was observed in the morning due to the UK inflation report for April. I discussed this report in detail yesterday, concluding that the market reaction could be unpredictable. Inflation in April fell to 2.3%, and core inflation to 3.9%. In both cases, the actual values were higher than market expectations. However, it should be noted that both forecasts were extremely optimistic. Analysts could have predicted inflation dropping to 0%, making any actual value higher than the forecast. Such forecasting seems odd, as does the market's reaction to it.

A decrease in inflation to 2.3% means that the Bank of England will have sufficient grounds to start lowering interest rates this summer. The only doubt is core inflation, which is still much higher than the target. Because of core inflation, the Bank of England might delay shifting to a more dovish policy in June. However, the talk is still about a faster transition to a dovish policy, so demand for the pound should have decreased today. The construction of the upward wave continues, but I still expect the construction of the downward trend segment to resume. I consider the current strengthening of the pound to be a "trap."

General Conclusions

The wave pattern for GBP/USD still suggests a decline. I am considering selling the instrument with targets below the level of 1.2039, as wave three or C has not yet been canceled. A successful attempt to break through the level of 1.2625, which equates to 38.2% according to Fibonacci, from above would indicate the possible completion of the internal corrective wave within wave 3 or C, which looks like a classic three-wave pattern.

The wave pattern is even more telling on a larger wave scale. The downward corrective trend segment continues to form, extending its second wave to 76.4% of the first wave. An unsuccessful attempt to break through this level could have led to the beginning of wave three or C, but a corrective wave is currently forming.

Main Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to trade and often change.
2. If there is no certainty in the market situation, it is better to stay out.
3. Absolute certainty in the direction of movement does not exist and never will. Always use protective stop-loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.