FX.co ★ Analysis of GBP/USD on December 7. Demand for GBP drops

Wave analysis

The wave analysis of the pound/dollar pair is really complicated. There are 5 internal waves inside the recent wave C. Each of them is almost equal in size. Since all the waves inside C and A are almost equal, wave e may soon end its formation.

A decline in the British pound points to the fact that wave e in C could be longer. However, I hope that wave e will end its formation in the near future. Thus, the downtrend will also stop. Notably, the current news flow could hardly support the pound sterling. This fact may cause a new wave of the currency sell-off. Until the price breaks the low logged on November 30, there is hope that wave e in C is finished. If the euro/dollar pair forms a downside wave, the pound/dollar pair will also do the same.

Macron denied Boris Johnson's offer

On Tuesday, the pound/dollar pair increased by 30 pips and then dropped by 75 pips. Thus, demand for the British pound slid. In fact, demand for the British currency regularly declines. There are a lot of reasons for that. On Tuesday, in the US and the UK, the news flow was rather weak. However, traders found reasons to sell the currency. Thus, there is solid ground for the depreciation. I have already mentioned that large banks expect the US Fed to speed the QE tapering up to $25-30 billion a month. This could be the first driver for the US dollar growth. In addition, the rising tension between the UK and European Union as well as between the UK and France could also lead to the pound's depreciation. In fact, the UK and France are already involved in two conflicts. The first one is about fishing territories and the second one concerns illegal migration. Boris Johnson, in an open letter to Emmanuel Macron, proposed jointly patrolling the French coast to prevent refugees from sailing across the English Channel. However, Paris refused, citing the absurdity of this proposal, which presupposes that foreign police or patrols will enter French territory. Paris also noted that the UK could pursue a more effective policy of returning migrants to solve the migration crisis, and not blame other countries. As you can see, the dispute between London and Paris is not resolved.

Conclusion

The wave pattern of the pound/dollar pair looks quite convincing now. Wave e could be completed soon. Thus, traders can buy the trading instrument amid a possible formation of a new trend area in the near future. However, at the moment, the pair dropped below 1.3271. Thus, it is better to avoid buying the instrument.

Bigger time frames

Since January, a downside part of the trend has been formatting. This part could be of any length. The formation of wave C could end soon. However, there are no obvious proofs. The fact is that the downside part of the trend could become longer, though there are no signals for that.