In the previous article, I discussed why it is logical for the pound to fall. The wave analysis, the state of the UK economy, and recent inflation reports in the US and the UK support this view. The fact that the market is not in a hurry to reduce demand for the pound tells me that the British currency has a huge potential to decline.
London Mayor Sadiq Khan said that Brexit cost the UK economy 160 billion euros. Britain's departure from the European Union has reduced the size of its economy by 6% so far. Mayor Khan also pointed out that the UK has 1.8 million fewer jobs than it would have if it had not left the EU. There have already been multiple reports about labor shortages in the United Kingdom, particularly in professions such as drivers, loaders, and nurses.
"It's now obvious that Brexit isn't working," Khan told the Mansion House audience. "The hard-line version of Brexit we've ended up with is dragging our economy down and pushing up the cost of living." It's worth noting that inflation in the UK has risen much more strongly compared to the US or the EU. Consumer prices have fallen much more slowly than in the US and the EU. It would be more accurate to say they are "slowing down," as prices continue to rise almost everywhere, considering how many billions of dollars central banks have printed.
Khan called for Britain to rejoin the single market. Take note that Khan is a member of the Labour Party, and Labour Party leader Keir Starmer believes that the country can negotiate a new deal with the European Union that would be more advantageous for the UK. It remains to be seen how many years it will take to develop a new deal.
The Mayor of London also stated that economic losses will continue to grow if the country remains outside the bloc. In addition, according to recent polls, the majority of Brits consider Brexit a "mistake." However, whether it was a mistake or not is no longer important. What matters is that the pound tumbled to its record lows a couple of years ago and has only managed to recover slightly since then. If you look at the weekly chart, it's clear in which direction the pound has been moving for the past 16 years.
Based on the analysis, I conclude that a bearish wave pattern is being formed. Wave 2 or b appears to be complete, so in the near future, I expect an impulsive descending wave 3 or c to form with a significant decline in the instrument. The failed attempt to break through the 1.1125 level, which corresponds to the 23.6% Fibonacci, suggests that the market is prepared to sell a month ago. I am currently considering selling.
I would wait for a successful attempt to break through the 1.2627 level as this will serve as a sell signal. Another signal was formed on Tuesday, in the form of an unsuccessful attempt to break this level from below. Now I am quite confident about the instrument's decline, at least to the 1.2468 level, which would already be a significant achievement for the dollar, as the demand for it remains very low.