For the GBP/USD pair, the wave analysis remains relatively clear yet complex at the same time. The construction of a new downtrend section continues, the first wave of which took on a very prolonged form. The second wave also turned out to be quite extensive, giving us every reason to expect the prolonged development of the third wave.
At the moment, I am not entirely confident that the construction of wave 2 or b is complete. The retreat of quotes from the peaks reached is too small to consider it a guaranteed start of wave 3 or c. Wave 2 or b has already taken on a five-wave form, but it remains corrective and should be completed soon (or is already completed). Nevertheless, we continue to observe the construction of new internal waves, which are currently very difficult to attribute to any specific higher-scale wave.
Targets for the decline of the pair within the assumed wave 3 or c are located below the 1.2039 level, which corresponds to the low of wave 1 or a. Unfortunately, wave analysis tends to complicate and may not correspond to the news background. At the moment, I do not abandon the working scenario; a successful attempt to break the 38.2% Fibonacci level indicates the market's readiness for selling the British pound.
Bulls sharply retreated, but there are doubts about the fall of the pound
The exchange rate of the GBP/USD pair fell by 100 basis points on Tuesday in the second half of the day but also rose by 60 in the first half. In the morning in the UK, statistics were released, which the market interpreted in favor of the British pound. I believe that the market was right in its conclusions and reactions. The unemployment report showed a decrease instead of growth, and wage growth slowed down not significantly enough. Weak wage decline means that inflation may also fall very weakly soon. And the Bank of England may hold the rate at its peak longer than expected just yesterday. Certainly, no one knows the exact timing now. Just remember what opinions were expressed about the Fed rate a month or two ago and how they changed later. However, the market's reaction to British statistics was correct.
The market's reaction to US statistics cannot be called incorrect either. Inflation showed values higher than expected by market participants, causing an increase in demand for the dollar. The pattern is the same: the higher the inflation, the longer the regulator will keep rates unchanged while the market is expecting a softening of monetary policy. The euro continues to decline, but in the case of the pound, I will not be surprised if the decline is short, as it has been more than once in the last two months. But I continue to consider only sales.
General conclusions.
The wave pattern of the GBP/USD pair suggests a decline. At the moment, I am considering selling the pair with targets below the 1.2039 level because wave 2 or b cannot last forever, like a flat. A successful attempt to break the 1.2627 level became a signal for sales. In the near future, another signal may form in the form of an unsuccessful attempt to break this level from below. If such a signal appears, confidence in the decline will also appear, at least to the 1.2468 level, which will already be a significant achievement for the dollar, demand for which remains very low.
On the higher wave scale, the picture is similar to the euro/dollar pair, but there are still some differences. The descending corrective section of the trend continues its construction, and its second wave has taken on an extended form – at 61.8% of the first wave. An unsuccessful attempt to break this level may lead to the start of the construction of 3 or c.