The wave structure for the pound/dollar pair remains reasonably clear while also becoming more complex. The construction of a new bearish trend segment continues, with the first wave of it taking on an extended form. The second wave has also become quite extensive, giving us every reason to expect the prolonged development of a third wave.
At the moment, I'm not confident that the construction of wave 2 or b is complete. The pullback from the peaks is too small to consider it a guaranteed start of wave 3 or c. The increase in the pound's quotes following recent meetings of the Bank of England and the Federal Reserve led to a significant rise, and now wave 2 or b has taken on a five-wave structure. However, it remains corrective and should be completed soon (or may have already been completed). Targets for the pair's decline within wave 3 or c are located below the 1.2039 mark, corresponding to the low of wave 1 or a.
Unfortunately, wave analysis tends to become more complex, and the news background only sometimes aligns with it. At this time, I'm not giving up on the working scenario, but a few unsuccessful attempts to break the 38.2% Fibonacci level indicate a possible further complication of wave 2 or b.
The pound will only decline once it breaks below 1.2627.
The pound/dollar pair increased by 20 basis points on Wednesday, but the amplitude of movements during the day was much more significant. Let's start with the fact that demand for the pound sharply declined yesterday. Today, the sales of the pound continued until the moment when the UK released its inflation report for December. The market expected the Consumer Price Index to continue to slow down in line with the Bank of England's expectations. However, inflation accelerated from 3.9% year-on-year to 4.0%.
I cannot describe this increase in inflation as significant or unexpected. 0.1% is very small and does not matter whether it is an increase or a decrease. However, the market expected a decrease of 3.8%. In monthly terms, inflation increased by 0.4% (0.2% was expected). Core inflation remained unchanged at 5.1% year-on-year. All these data allowed the market to draw only one conclusion: if the Bank of England had expected to soften its "hawkish" stance slightly, it would have to wait a little longer.
Although the dynamics of American inflation over the past six months also leave much to be desired, it is still possible to expect the Fed to transition to easing policies in the shorter term. If today's inflation in the UK had shown a slowdown, the pound might have continued to decline. However, this did not happen, and the 1.2627 mark once again prevented the pair from logically declining within the expected wave 3 or c.
General Conclusions.
The wave pattern for the pound/dollar pair suggests a decline. At this time, I am considering selling the pair with targets located below the 1.2039 mark because wave 2 or b should ultimately be complete and may have already done so. There are already some signs of its completion. However, I do not recommend rushing to conclusions and selling. I wait for a successful attempt to break below the 1.2627 mark, after which believing in further pair decline will become much easier.
The picture is similar to the euro/dollar pair on a larger wave scale, but there are still some differences. The downward corrective segment of the trend continues its construction, and its second wave has already taken on an extended form - at 61.8% of the first wave. An unsuccessful attempt to break this level could lead to the beginning of the construction of wave 3 or c.