The wave analysis for the GBP/USD pair remains quite complex. A successful attempt to break through the Fibonacci level of 50.0% indicated the market's readiness to build a downward wave 3 or C. If this wave continues to develop, the wave pattern will become much simpler, and the threat of complicating the wave analysis will disappear.
As I noted, the wave pattern should be simple and understandable. There has been little simplicity and understanding in recent months. For a long time, the pair was in a sideways trend, and only now has there been an opportunity to build an impulsive downward wave.
In the current situation, my readers can expect the formation of wave 3 or C, the targets of which are located below the low of wave 1 or A. Therefore, the pound should decline by at least 400-500 basis points from current levels. With such a decline, wave 3 or C will be relatively small, and I expect a much larger decline in quotes. The news background supports the US dollar, and after breaking through the level of 1.2469 (50.0% Fibonacci), the psychological barrier for sellers has been removed.
Sellers are not rushing back into the market
The GBP/USD pair rose by 30 basis points on Monday. The amplitude of movements was weak, but simultaneously, the pair managed to update Friday's peak. And, I remind you, the euro currency failed to do so. What happened on Monday that caused the pound to start rising overnight? Nothing. What we saw on the first day of the week is not a coincidence; it's just ordinary market noise. The pair continues to build a corrective wave, part of the presumed wave 3 or C. Accordingly, an increase in the pound quotes is possible since this wave has not yet appeared complete.
This week, market participants are expecting many interesting events, so I do not doubt that they are all waiting for new information to adjust their trading plans for the near future. Strong statistics from America will support the current wave analysis and the dollar. Weak statistics will contribute to the further development of the corrective wave. However, in my opinion, this explanation is too simplistic.
The key question now is not the state of the US economy or the Fed's policy in the coming months. The key question is the Bank of England's policy in the coming months. And there is no information on this topic. A couple of times in recent weeks, we heard weak hints of policy easing in the summer; however, several Bank of England officials stated that inflation in the UK may stop falling soon. If this happens, the Bank of England will also take a wait-and-see position, just like the Fed. And then the game of catch-up will begin, standing still. Whose inflation will resume falling first, that central bank will be closer to cutting interest rates. Consequently, that currency will be closer to a decline.
General conclusions
The wave pattern of the GBP/USD pair still suggests a decline. At the moment, I am still considering selling the pair with targets below the level of 1.2039, as I believe that wave 3, or C, has begun its development. A successful attempt to break through the level of 1.2472, which corresponds to 50.0% Fibonacci, indicates the long-awaited market readiness to build a downward wave.
On a larger wave scale, the wave pattern is even more eloquent. The downward corrective section of the trend continues its development, and its second wave has taken on an extended form - up to 76.4% of the first wave. An unsuccessful attempt to break through this level could have led to the start of the construction of wave 3, or C.
The main principles of my analysis:
Wave structures should be simple and understandable. Complex structures are difficult to play out; they often bring changes.If there is no confidence in what is happening in the market, it is better not to enter it.There is never one hundred percent certainty in the direction of movement. Don't forget about Stop-Loss protective orders.Wave analysis can be combined with other types of analysis and trading strategies.