FX.co ★ Analysis of GBP/USD on February 2, 2024

Regarding the pound/dollar pair, the wave analysis remains fairly clear and, at the same time, continues to be complicated. The construction of a new downtrend segment continues, the first wave of which took on a very extensive form. The second wave also turned out to be quite extensive, giving us every reason to expect the prolonged construction of the third wave.

At the moment, I am not confident that the construction of wave 2 or b is complete. The retreat from the achieved peaks is too small to consider it a guaranteed start of wave 3 or c. Wave 2 or b has already taken on a five-wave form, but it remains corrective and should be completed soon (or may already be completed). Nevertheless, we continue to observe the construction of new internal waves, which are currently very difficult to attribute to any specific wave of a larger scale.

Targets for the pair's decline within the assumed wave 3 or c are located below the level of 1.2039, corresponding to the low of wave 1 or a. Unfortunately, wave marking tends to be complicated, and the news background does not always correspond to it. I am not abandoning the working scenario, but a few unsuccessful attempts to break the 38.2% Fibonacci level indicate the market's reluctance to sell.

The range continues, and even the news did not help.

The pound/dollar pair's exchange rate decreased by 70 basis points on Friday, but by the end of the day, the losses for the British pound may exceed 100 points. Just an hour ago in America, a whole series of reports came out, all of which, without exception, showed a sharp exceedance of market expectations. The Nonfarm Payrolls report exceeded forecasts by only twice, dispelling doubts about the strength of the US labor market. The unemployment rate remained unchanged at 3.7%, although the market expected an increase to 3.8%. Even wages supported the dollar as they grew by 4.5% in January, while the market expected no more than 4.1%.

If someone still needs to remember, I will remind you that wages are a major concern for central banks. Against inflation and rising unemployment, wages began to rise in the US, the UK, and the EU. People started earning more money and spending more, which fueled inflation to an even greater acceleration or slowed its decline. And the stronger the inflationary factors, the higher the probability that the FOMC will keep the rate at its peak even longer. Therefore, all three reports from the US provided support for the American currency. Only the report on consumer confidence from the University of Michigan remains ahead. The US currency may end the day with record growth if it also turns out positive.

Unfortunately, all the important news and events this week have not ended the range for the British.

General Conclusions

The wave pattern of the pound/dollar pair suggests a decline. At the moment, I am considering selling the pair with targets below the level of 1.2039 because wave 2 or b should eventually be completed and may end at any time. However, we are still observing only horizontal movement, so I recommend staying calm with sales. I am waiting for a successful attempt to break the level of 1.2627, after which it will be much easier to believe in the pair's further decline.

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