The wave structure of the GBP/USD pair remains quite complex. A successful attempt to break through the 50.0% Fibonacci level in April indicated the market's readiness to form a downward wave 3 or C. If this wave continues to develop, the wave pattern will become much simpler, eliminating the threat of a more complicated wave structure. However, the pair has remained the same in recent weeks, which raises doubts about the market's readiness for selling. The downward wave 3 or C could be extended, just like all the previous waves of the current still-descending trend segment.
In the current situation, my readers can still expect the formation of wave 3 or C, with targets located below the low of wave 1 or A, at the 1.2035 mark. Therefore, the pound should decrease by at least 600–700 basis points from the current levels. Such a decline would make wave 3 or C relatively small, so I expect a much larger drop in quotes. It may take a long time to form wave 3 or C. Wave 2 or B took five months, and that was just a corrective wave. Building an impulse wave could take even more time.
The pound doesn't waste time, even on Friday.
The GBP/USD rate increased by another 20 basis points on Friday; the day isn't over yet. The US session has just begun, and the most interesting movements occur. Therefore, we expect the pound to gain more value today. What are the reasons for this? It's impossible to answer this question in one sentence.
For several weeks, I've been saying that the demand for the British pound is growing much stronger than the news background suggests. For example, what news today could have caused the pound to rise again? In the UK – nothing, in the US – nothing. Even considering the speeches of Catherine Mann and Christopher Waller, it's still impossible to explain the new strengthening of the pound. Catherine Mann spoke in the morning, and Christopher Waller spoke just an hour ago. The pound started rising right with the opening of the US session. Therefore, American market participants waited for the opening to continue buying, and the news background has nothing to do with it. And even if Ms. Mann said something like "we are not ready to lower the rate yet," why would these words cause the pound to rise when, at the same time, the Fed is also not ready to lower the rate? Moreover, the FOMC will "not be ready to lower the rate" for much longer.
General Conclusions
The GBP/USD pair's wave pattern still suggests a decline. I am still considering selling the pair with targets below the 1.2039 mark, as wave 3 or C has not yet been canceled. A successful attempt to break the 1.2625 mark, which equates to 38.2% on the Fibonacci scale, from above will indicate the possible completion of the internal corrective wave within 3 or C, which currently looks like a classic three-wave pattern.
On a larger wave scale, the wave pattern is even more telling. The descending corrective segment of the trend continues to form, and its second wave has been extended – at 76.4% of the first wave. An unsuccessful attempt to break this mark could lead to the beginning of wave 3 or C, but a corrective wave is currently forming.
Key Principles of My Analysis:
Wave structures should be simple and understandable. Complex structures are difficult to trade and often change.If you are unsure of what is happening in the market, it is better to avoid entering it.There can never be 100% certainty in the direction of movement. Don't forget about protective stop-loss orders.Wave analysis can be combined with other types of analysis and trading strategies.