The wave pattern for the GBP/USD instrument remains quite complex and very ambiguous. For some time, the wave picture looked quite convincing and suggested the formation of a downward wave with targets located below the 23rd figure. However, the demand for the US currency increased too much for this scenario to realized.
At present, the wave pattern has become completely unreadable. I use simple structures in my analysis because complex ones have too many nuances and ambiguous moments. Now we see an upward wave that overrode a downward one, which overrode the previous upward wave, which overrode the previous downward one. The only assumption that can be made is an expanding triangle with the upper point around the 30th figure and the balancing line around the 26th figure. This week, the upper line of the triangle was reached, and the unsuccessful attempt to break it indicates the market's readiness to form a downward wave.
The GBP/USD pair decreased by another 20 basis points on Friday. The movement amplitude was again quite weak, but the demand for the pound has declined for two consecutive days, which has yet to happen often in recent months. Yesterday, there were no significant reasons for the pound's decline. Today, the price of the pound slightly decreased following the release of the retail sales report. Retail sales volumes in the UK fell by 1.2% in June instead of the expected -0.4%. The figure decreased by 0.2% yearly instead of the expected +0.2%.
However, today's report, yesterday's unemployment and wage reports, and the inflation report from the day before yesterday do not have enough influence to reverse the market. In other words, I do not believe that the series of reports from the UK caused a decrease in demand for the pound at the end of the week. But the unsuccessful attempt to break the upper line of the triangle could have done so. Also visible in the chart above is the "balancing line," which currently passes around the 26th figure. The instrument should decline to this mark in the coming weeks.
The market has fully factored in all the economic statistics from the US, which did not support the dollar. It is now time to note that the Bank of England is no further from the first round of easing than the Fed. Consequently, if the pound were to rise on weak reports from America, it now needs to balance out a bit. If we consider the most "bearish" scenario, then, as at the beginning of the year, the instrument could fall to the 21st figure. And in my opinion, such a movement could not be called "inconsistent with the news background."
General Conclusions
The wave pattern for the GBP/USD instrument still indicates a decline. If a new upward section of the trend began on April 22nd, it has already taken on a five-wave appearance. Therefore, we should now expect at least a three-wave correction. The unsuccessful attempt to break the upper line of the triangle indicates the market's readiness to form a downward wave set. In the near future, it is worth considering selling the instrument with targets around 1.2820 and 1.2468, corresponding to 23.6% and 38.2%, according to Fibonacci.
On the larger wave scale, the wave pattern is even more eloquent. The downward corrective section of the trend continues to build, and its second wave could reach 100.0% of the first wave. The internal wave structure of this wave is completely unreadable.
Basic Principles of My Analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to trade and often change.
- If there is confidence in what is happening in the market, it is better not to enter.
- There is never and can never be 100% confidence in the direction of movement. Remember to use protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
