FX.co ★ Analysis for GBP/USD on February 8, 2024

Regarding the pound/dollar pair, the wave analysis remains quite clear and, at the same time, remains complex. The construction of a new downtrend segment continues, with its first wave having a significantly extended form. The second wave has also turned out to be quite extended, giving us every reason to expect the prolonged development of the third wave.

At the moment, I am not entirely confident that the construction of wave 2 or b is complete. The retracement 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). However, we continue to observe the construction of new and new internal waves, which are currently challenging to attribute to any specific wave of a higher scale.

Targets for the decline of the pair, within the presumed 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 be 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.

The sideways movement is completed, but the market is not in a hurry to sell

The pound/dollar pair decreased by 25 basis points on Thursday, and the range of movements was very weak. Perhaps with the opening of the American session, the situation will change for the better, but currently, any "correct" movement is a downward one. Let me explain what I mean. The current wave analysis suggests the construction of a downtrend. This is one. An attempt to break through the level of 1.2627, corresponding to 38.2% Fibonacci, was unsuccessful. This is two. The sideways movement is completed with a breakthrough of the lower boundary. This is three. The news background mostly supports sellers rather than buyers. This is four.

Based on all the above, I believe that the decline of the British pound must continue, and its rise would mean that the market remains in a stage of uncertainty. This stage is very bad for traders, as the wave pattern can be complicated again. In the last month and a half, when we all observed horizontal movement, it was practically impossible to distinguish waves within it. And even if you try very hard, what's the point if the pair is trading horizontally? Therefore, I think a return to horizontal movement would mean that my readers can take a break from trading the British pound for another couple of weeks. At the same time, I still rely on the market's prudence because most factors now indicate the need to reduce demand for the pound. I expect the pair to drop to the level of 1.2469, which is equivalent to 50.0% Fibonacci, in the next few days.

General conclusions

The wave pattern of the pound/dollar pair suggests a decline. Currently, 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 the sideways movement. A successful attempt to break through the level of 1.2627 became a signal for sales. Today or tomorrow, another signal may form in the form of an unsuccessful attempt to break this level. After a 200-point decline in the pair, a pullback is a common occurrence, but I do not expect anything from the British pound except further decline.

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