Forex Analysis & Reviews: 19.07.2024 - GBP/USD Analysis: Pound...

19.07.2024 07:16 PM

GBP/USD Analysis: Pound Declines as Week Concludes (July 19th)

The wave pattern for the GBP/USD pair remains quite complex and very ambiguous. For some time, the wave pattern 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 be 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 that an expanding triangle is forming 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.

Retail Sales Fell Short of Expectations

The GBP/USD pair decreased by another 20 basis points on Friday. The amplitude of movements was again quite weak, but the demand for the pound has declined for two consecutive days, which has not happened 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% year-on-year instead of the expected increase of +0.2%.

However, today's report, along with yesterday's unemployment and wage reports and the inflation report from the day before, does not have enough influence to reverse the market trend. In other words, I do not believe that the series of UK reports caused the 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 pair should decline to this level in the coming weeks.

The market has already factored in all the economic statistics from the US, which have not supported 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 rose due to weak reports from the US, it now needs to balance out a bit. If we consider the most "bearish" scenario, then, as at the beginning of the year, the pair could fall to the 21st figure. And in my opinion, such a movement would not be considered "inconsistent with the news background."

General Conclusions

The wave pattern for the GBP/USD pair still indicates a decline. If a new upward section of the trend began on April 22nd, it has already taken on a five-wave form. 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 set of downward waves. In the near future, it is worth considering selling the pair 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 no confidence in what is happening in the market, it is better not to enter.
There is no 100% certainty 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.

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*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.