FX.co ★ Analysis for GBP/USD on February 5, 2024

For the GBP/USD pair, the wave analysis remains reasonably clear and, at the same time, remains complex. The construction of a new downtrend segment continues, with the first wave taking on a very extensive form. The second wave also turned out to be quite extensive, giving us every reason to expect the prolonged development of the third wave.

At the moment, I need more confidence that the construction of wave 2 or b is completed. The retreat of quotes from the peaks reached needs to be bigger 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 is already completed). However, 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 analysis tends to become more complicated. At the moment, I do not abandon the working scenario; a successful attempt to break through the 38.2% Fibonacci level indicates the market's readiness to sell the British pound.

Is the consolidation over?

The GBP/USD pair fell by 110 basis points on Friday; on Monday, at the start of the American session, it decreased by an additional 80 points. I believe that such a movement can be called a "collapse." Everyone remembers how the British pound traded in the last few months. It was a classic consolidation from which the market had no desire to break out. However, when the British pound loses 200 points in less than a day, there is no other option.

On Monday, the news background was relatively weak. And the pound's decline was not caused by news and reports. Jerome Powell spoke with an unscheduled speech at night, but he did not report anything new compared to last Thursday (I will examine his speech in more detail in a separate review).

In the UK, the business activity index in the service sector for January was released in the morning, which only interested a few. Today, the final assessment of the indicator was released, which practically did not differ from the preliminary one. The market already understood what figure it would see, so it did not react. In any case, the index slowed down minimally, from 54.3 points to 53.4. Any value above 50.0 is considered positive, so it is very unlikely that the demand for the pound fell so much that the British pound lost 80 points in half a day due to one not-very-important report. However, a successful attempt to break through the level of 1.2627 gives the British pound a ticket down and the dollar up, which I expected in recent months.

General Conclusions.

The wave pattern of the GBP/USD pair suggests a decline. At the moment, I am considering selling the pair with targets located below the level of 1.2039 because wave 2 or b cannot last forever, just like a consolidation. A successful attempt to break through the level of 1.2627 signaled sales, which I hope everyone managed to open. After a daily decline, the pair may rebound upward, but I do not expect anything from it except 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 trend segment continues its construction, and its second wave has taken on an extensive form – at 61.8% of the first wave. An unsuccessful attempt to break through this level may lead to the beginning of the construction of wave 3 or c.