The wave layout for GBP/USD looks complicated at the moment. The wave structure differs significantly from the one of EUR/USD. Speaking about GBP/USD, the instrument has formed an upward trend section in the a-b-c-d-e shape, but apparently, it has been completed. GBP/USD is more likely to complete its upward trend section than in the EUR/USD case. In recent weeks, GBP/USD has been retreating from its highs. Thus, I can draw a conclusion that the downward trend section is now underway. It is expected to develop at least 3 waves. The price rise in the last few days could be viewed as wave b within the ongoing trend section which could form 5 impulsive waves. Nevertheless, the pound sterling is likely to extend its decline. Only 1 downward wave has been shaped so far, but it doesn't look convincing and lengthy. No doubt, the upward trend section could get complicated lots of times and get any shape, but this scenario is not classical. Personally, I prefer to consider standard wave structures which enable me to make forecasts and generate trading ideas.
Upward trend section could get more complicated again
GBP/USD grew by 20 pips on Friday which is a modest price change for this instrument. Curiously, any increase in GBP/USD arouses doubts about a further development of a downward trend section. This is an unwanted scenario. Still demand for the sterling remains buoyant. Perhaps the reason is the same as in the euro's case. Earlier, the Federal Reserve was widely expected to continue aggressive monetary tightening but the Bank of England was expected to go ahead with at least some rate hikes.
Nowadays, the situation is the polar opposite. Inflation still persists in the UK. Therefore, the British regulator has no other option but to stick to an aggressive monetary policy. It is hard to say no whether the UK central bank will act in line with expectations. However, the market is betting on the hawkish Bank of England, judging by the market developments.
The economic calendar was empty on Friday and made no impact on market sentiment. Demand for GBP remains high because of further monetary tightening at future Bank of England meetings. If my assumption is true, the steeling will not need strong statistics to prop up its strength. What shall we expect from the US dollar? Under current market conditions, I don't see preconditions for a sharp change in market sentiment. The wave structure suggesting a decline in GBP/USD is still valid, but demand for GBP was growing even overnight. All in all, the US dollar should hope for a wonder or rely on the prudence of market participants. After the policy meetings of the US Fed and the Bank of England market sentiment might change because traders will have priced in appropriate policy decisions.
The wave picture of GBP/USD still suggests the development of the downward trend section. For the time being, we may consider selling GBP/USD with the target at about 1.1508 which corresponds to the 50.0% Fibonacci correction due to a MACD's downward reversal. The upward trend section could get a more elongated form than it is now. The odds are that this section has been completed. Nevertheless, we should be cautious about selling because the pound sterling is poised to trade higher for a while.
In a larger time frame, the wave layout is similar to the one of EUR/USD. This is nice because both instruments tend to move in a similar manner. The upward correctional section is about to finish soon or it is already over. If so, GBP/USD is going to carry on building a downward section which consists of at least 3 waves. The currency pair is expected to decline to 1.5.