FX.co ★ Analysis of GBP/USD on January 4, 2021. Sterling temporarily stopped at 37th figure

The section of the trend, which originates on September 23, took a five-wave fully completed form. However, the wave counting can be complicated several times. The increase in the quotes of the instrument continues, so the expected 5 in 5 wave can also take a five-wave form. If this assumption is correct, then the increase in quotes will continue with targets located up to the 40th figure.

The lower chart also shows that the wave counting underwent certain changes. The assumed wave 5 has already taken a more extended form, and if the current wave counting is correct, then wave 3 in 5 is currently being built. An unsuccessful attempt to break through the 127.2% Fibonacci level indicates a possible construction of an internal correction wave, but the entire wave picture has not yet taken a complete form. Thus, I expect a successful attempt to break through the 37th figure and the continuation of growth of the Pound/Dollar instrument.

The trade deal between the UK and the European Union has been signed, both parliaments have approved it, and the sterling continues to rise. On Monday, it scored 45 base points, but upon the approach to the 37th figure, the sterling lost its advantage. However, a decrease of 45 points does not play any role at all. It cannot be interpreted as the beginning of a new downward trend segment. Most likely, everything will end with the construction of a small correction wave, after which the price increase will resume.

On Monday, the UK released a report on business activity in the manufacturing sector, which was even higher than the 57.5 market expectation. This means that the manufacturing sector in Britain continues to grow after the pandemic crisis and is recovering. Unfortunately, it is not the manufacturing sector that suffers most from the pandemic, quarantines, and lockdowns, but the service sector. According to it, there were no data on business activity for December yet. And the service sector also affects the economy and GDP very much. And in the case of the UK, the service sector has an extremely strong impact on GDP. Thus, I would not be too happy about the strong business activity in production.

Lockdowns in the UK in November-January will inevitably pull the economy down. Thus, I expect a reduction in UK GDP. But will it play any role for the sterling? Today, the pound did not react at all to the strong report on business activity. And in general, the markets continue to react infrequently to reports.

General conclusions and recommendations:

The Pound-Dollar instrument resumed the construction of an upward trend section. Thus, I currently recommend buying the Pound/Dollar instrument after a successful attempt to break through the 37th figure with targets located near the 40th figure, within the expected 3 in 5 in 5 wave of the upward trend section. You can also buy the pound sterling on the new upward signals of the MACD. But still, it should be understood that the upward section of the trend cannot be extended indefinitely. And the closer it is to completion, the more dangerous it is to buy the pound sterling.