The wave analysis for GBP/USD remains quite complex and ambiguous. For a while, the wave pattern looked convincing and suggested the formation of a downward wave structure with targets below the 1.2300 level. However, in practice, demand for the US dollar has increased too much for this scenario to materialize, and it continues to rise.
Currently, the wave pattern has become unreadable. As a reminder, I use simple structures in my analysis because complex ones involve too many nuances and ambiguities. We have just seen another upward wave, which has caused the pair to break out of the triangle. The current upward wave structure, which presumably started on April 22, might extend even further, as the market seems unlikely to calm down until it has fully priced in all the stages of the Federal Reserve's rate cuts. At the moment, a three-wave corrective structure is forming again, and a successful attempt to break the 1.3142 level, which corresponds to 100.0% on the Fibonacci scale, confirms the market's readiness for at least a minor decline.
A Brief Pause and an Opportunity for the Dollar
The GBP/USD exchange rate has hardly changed throughout Monday. There were very few news updates today, so the market decided it was better to wait and make the right decision rather than rushing ahead. It has been doing so for quite some time. Currently, the situation with the British pound remains complex and ambiguous. Demand for the pound is increasing much more frequently and strongly than for the dollar, making even a simple corrective wave difficult to anticipate. This week will be full of reports from the U.S., which could pressure sellers. However, rather than focusing on unemployment or Nonfarm Payrolls, let's consider potential correction scenarios for the pair.
Since the pound cannot keep rising indefinitely, now is a good time to build a corrective wave. Therefore, I expect the pair to pull back by 50% from the peaks of the last upward wave, which corresponds to the 1.2965 level. I also note that there are grounds to suggest the completion of the current upward wave structure. This would result in a three-wave correction. Thus, the initial plan is for the pair to decline to the 1.2965 level. Next, we need to see if sellers can drive the pair lower. In a three-wave structure, the target for the decline could be the 1.2660 level.
However, the current upward wave could extend much further. Internal waves are not evident within it, and news developments could easily lead to a renewed decrease in demand for the U.S. dollar. It's important to remember that just because the dollar has been falling for several weeks (or months, or even years), it doesn't mean it can't fall further. Usually, when an "absolutely impossible scenario" arises, it tends to be the one that materializes.
General Conclusions
The wave pattern for GBP/USD still indicates a decline. If the upward phase of the trend began on April 22, it has already developed into a five-wave pattern. Therefore, we should now anticipate at least a three-wave correction. In my view, we should consider selling the pair with targets around the 1.2627 level.
On a higher wave scale, the wave pattern has evolved. We can now anticipate the formation of a complex and extended upward corrective structure. Currently, it is a three-wave pattern, but it could evolve into a five-wave structure, which may take several more months or even longer to complete.
Key Principles of My Analysis:
- Wave structures should be simple and clear. Complex structures are difficult to interpret and often subject to changes.
- If there is no confidence in market movements, it is better not to enter the market.
- Absolute certainty about the direction of movement is neither possible nor advisable. Remember to use protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
