FX.co ★ GBP/USD. Analysis for January 8th. The Fed's policy this spring may disappoint the market

The wave analysis for the pound/dollar pair remains relatively clear while also becoming more complex. The construction of a new downtrend segment continues, the first wave of which has taken on quite an extended form. The second wave has also become lengthy, giving us every reason to expect a prolonged construction of the third wave.

At the moment, I'm not confident that the construction of wave 2 or b is complete. The pullback from the peaks is too small to consider it a guaranteed start of wave 3 or c. The increase in the pound's quotes during the Bank of England and Fed meetings led to a significant increase, and now wave 2 or b has taken on a five-wave appearance. However, it remains a corrective wave and should be completed soon (or may have already been completed). The targets for the pair's decline within wave 3 or c are below the 1.2039 level, corresponding to the low of wave 1 or a.

Unfortunately, wave analysis tends to become more complex, and the news background only sometimes corresponds to it. At this time, I am not abandoning the working scenario, but there is a risk of transforming the entire wave structure.

The pound will fall once it breaches 1.2627.

The pound/dollar exchange rate remained unchanged on Monday. There was no news background today, but it doesn't matter anymore. I want to remind you that four attempts to break through the 1.2627 level have failed, so it is difficult to count on a decline in the pound now. At the same time, the wave analysis suggests a decline in the pair. The situation is at an impasse. The pound cannot go down, and it can go up, but the news background is still not strong enough for me to confidently state the presumed wave 2 or b complication.

Moreover, we are receiving signals from various sources indicating that the FOMC will not start lowering interest rates this spring. Just two weeks ago, according to the CME FedWatch tool, the probability of easing in March and May was about 80%, but now it's less than 60%. If the report on American inflation on Thursday shows a higher value than a month ago, the probability will decrease even further.

The market has gone too far ahead. FOMC members have never mentioned March as the start of the monetary policy easing process. Therefore, reality may disappoint those already set their sights on the first easing. Buyers of the pound and sellers of the dollar have aligned with this scenario. That's why the GBP/USD pair remains very high and cannot break through the 1.2627 level. The upward impulse is fading away.

General Conclusions.

The wave pattern of the pound/dollar pair suggests a decline. At the moment, I am considering selling the pair with targets located below the 1.2039 level because wave 2 or b must ultimately be complete and may do so at any moment. There are already some signs of its completion. However, I would take my time drawing conclusions and initiating sales. I would wait for a successful attempt to break through the 1.2627 level, after which it will be much easier to believe in further pair decline.

The picture is similar to the euro/dollar pair on a larger wave scale, but there are still some differences. The descending correctional trend segment continues to develop, and its second wave has already taken on an extended form, reaching 61.8% of the first wave. An unsuccessful attempt to break this level may lead to the start of wave 3 or c.