The wave analysis for GBP/USD remains quite complex and ambiguous. For a while, the wave pattern appeared quite convincing, suggesting a downward wave sequence with targets below the 1.2300 level. However, in practice, demand for the U.S. dollar surged too significantly to realize this scenario.
Currently, the wave pattern has become completely unreadable. As a reminder, I prefer to use simple structures in my analysis because complex ones involve too many nuances and ambiguities. We now observe an upward wave that has overlapped a downward wave, which in turn overlapped a previous upward wave, which itself overlapped a prior downward wave (all within a triangle). The only assumption now is an expanding triangle with the upper point around the 1.3000 level and a balancing line around the 1.2600 level. The upper line of the triangle has been reached, and an unsuccessful attempt to break through it indicated the market's readiness to build a downward wave sequence, the first of which is already complete, and the second is nearing completion.
The GBP/USD rate increased by 45 basis points on Monday, 90 on Friday, and another 35 on Tuesday. The pound has been rising for four consecutive days from the last pullback. If we consider the very beginning, the pound has been on an upward trajectory for nine consecutive days. Last week, there was at least some news that could have reduced demand for the U.S. dollar. Reports on inflation and producer prices in the U.S., which showed a decline, could have contributed to the dollar's fall. However, no significant news has emerged this week. The market continues to reduce demand for the dollar following Jerome Powell's Friday speech and expectations of a Fed rate cut in September.
As with EUR/USD, I have one simple question: If the two reasons for the dollar's decline are Powell's speech and the rate cut in September, how long will the dollar's decline continue? The first possible answer is obvious—until Friday. However, Powell will speak, and the factor of a rate cut in September, which no one doubts now, remains. Despite the market's confidence in the policy easing on September 18 for the past three weeks, this factor still exerts significant pressure on the U.S. dollar. The wave pattern for GBP/USD might become even more complex and unreadable today. At the moment, the instrument is unable to build even a classic three-wave correction. If the pound cannot construct a simple three-wave correction, what more complex wave structures can be discussed?
General Conclusions
The wave pattern for GBP/USD still suggests a decline. If the upward phase of the trend began on April 22, it has already taken on a five-wave form. Therefore, at this point, a minimum of a three-wave correction should be expected. In my opinion, the instrument should be considered for sales with targets around the 1.2627 level, which corresponds to the 38.2% Fibonacci retracement, and lower. I believe that a rebound from the 1.3033 level will provide a good entry point. If the rebound is not clear and precise, it is better not to trade it.
On a larger wave scale, the wave pattern has transformed. We can now assume the development of a complex and extended upward corrective structure. Currently, it is a three-wave structure, but it could transform into a five-wave structure, which might take several more months or longer to complete.
Key Principles of My Analysis
- Wave structures should be simple and understandable. Complex structures are difficult to trade and often subject to changes.
- If there is no confidence in what is happening in the market, it is better not to enter it.
- Absolute certainty in the direction of movement is neither possible nor ever guaranteed. Do not forget about protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
