The wave pattern for GBP/USD remains quite complex and ambiguous. For a period, the wave structure appeared convincing, suggesting a downward wave set with targets below the 1.2300 level. However, the demand for the US dollar grew too strong for this scenario to materialize.
Currently, the wave pattern has become unreadable. I prefer using simple structures in my analysis, as complex ones have too many nuances and ambiguities. At present, we observe an upward wave that overlaps a downward wave, which overlaps a previous upward wave, which in turn overlaps an earlier downward wave. The most plausible assumption is an expanding triangle with a peak around the 1.3000 level and a balancing line around the 1.2600 level. Last week, the upper line of the triangle was reached, and the failed breakout attempt suggests the market is preparing to form a downward wave sequence.
The British Pound is Ready to Fall, but It Needs Support
The GBP/USD rate's 25 basis point increase on Wednesday might have been influenced by positive news from the UK. While Europeans did not fully appreciate the UK's business activity reports, Americans did, showing greater eagerness to sell the dollar. A new factor emerged today that reduced demand for the US currency, which the market capitalized on.
The UK's services PMI rose from 52.1 to 52.4, and the manufacturing PMI increased from 50.9 to 51.8. Though the growth was modest, market expectations were lower, thus positively impacting the pound. In the last quarter, the British economy posted one of its highest values in the past two years. The UK economy is gradually recovering, though the Bank of England has not yet begun to ease monetary policy. If interest rates start to decline, the economy may grow faster, which would be positive for the pound. However, a rate cut itself is generally negative for the British currency, so strong growth based on economic recovery is unlikely.
A key moment for the pound's future remains the failed attempt to break through the upper line of the expanding triangle and the recent completion of the five-wave structure, which requires a three-wave corrective pattern. Consequently, I expect the pair to decline at least to the 1.2600 level, where the "balancing line" is located and which has been consistently balancing the price in 2024. The UK and US business activity indices are unlikely to affect this analysis significantly.
General Conclusions
The wave pattern for GBP/USD still indicates a decline. If a new upward trend segment began on April 22nd, it has already formed a five-wave structure. Therefore, we should now anticipate at least a three-wave correction. The failed breakout from the upper line of the triangle points to the market's readiness to form a downward wave sequence. Sales of the pair should be considered in the near future, with targets around 1.2820 and 1.2627, corresponding to the 23.6% and 38.2% Fibonacci retracement levels.
On a larger wave scale, the wave pattern has transformed. We can now expect the formation of a complex and extended upward corrective structure. Currently, it is a three-wave structure, but it could evolve into a five-wave structure, which may take several more months or even longer to complete.
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 uncertainty about market conditions, it is better to avoid entering the market.
- There is never 100% certainty in market direction. Always use protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies
