FX.co ★ Analysis of GBP/USD pair on May 7th. The market fluctuates, and the British currency holds steady

The wave analysis for the GBP/USD pair remains quite complex. A successful attempt to break the Fibonacci level of 50.0% indicated the market's readiness to build a downtrend wave 3 or c. If this wave continues its formation, the wave pattern will become much more straightforward, and the threat of complicating the wave analysis will disappear.

As I have noted, the wave pattern should be simple and understandable. There needs to be more simplicity and understanding in recent months. For a long time, the pair has been in a sideways trend, and only now is there a possibility of constructing an impulsive downtrend wave.

In the current situation, my readers can expect the construction of wave 3 or c, the targets of which are below the low of wave 1 or a. Therefore, the British currency should decline by at least 500-600 basis points from current levels. With such a decline, wave 3 or c will be relatively small, but I expect a more significant drop in quotes. After breaking the 1.2469 mark (50.0% according to Fibonacci), sellers have removed the psychological barrier, but recent US reports have prompted sellers to pause until better times.

Sellers are taking their time to go to the market.

The GBP/USD pair rate decreased by 5 basis points on Tuesday, while it increased by 15 yesterday. There is no news background in the UK and the USA these days. Therefore, the very weak desire of the market to make deals is understandable. The British currency is openly taking advantage of the current situation and is pleased that there are no new reasons for its sale. I remind you that the demand for the pound should continue to decline based on the current wave analysis and the news background. Lately, US reports have not pleased traders, but it is not possible to consider only negative data from the US while completely ignoring negative data from the UK.

There is currently a decoupling of expectations regarding the interest rates of the Bank of England and the Fed. The market believed the American regulator would start lowering the rate in March but was wrong. The market believed that the Bank of England would start lowering the rate at the end of the year, which was also wrong. It is clear that the British regulator may start easing as early as the summer, and the Fed - even throughout 2024, may not achieve the required inflation rate for rate cuts.

Based on the above, I expect a decline in the British currency, at least to the 23 figure. This mark should not be the final point of the British currency's decline, as the presumed wave 3 or c is far from taking on a completed form. Its internal wave structure is very complex, but the overall picture remains the same.

General conclusions

The wave pattern of the GBP/USD pair still suggests a decline. At the moment, I am still considering selling the pair with targets below the 1.2039 mark, as wave 3 or c continues its formation. A successful attempt to break the 1.2472 mark, which corresponds to 50.0% according to Fibonacci, indicates the long-awaited readiness of the market to build a downtrend wave. An unsuccessful attempt to break the 1.2625 mark, equivalent to 38.2% according to Fibonacci, will indicate the completion of the internal corrective wave within 3 or c.

On a larger wave scale, the wave pattern is even more eloquent. The descending corrective trend leg continues its formation, and its second wave has taken on an extended form - to 76.4% of the first wave. An unsuccessful attempt to break this mark could have led to the beginning of the construction of 3 or c, but at the moment, a corrective wave is being built.

The main principles of my analysis are:

1. Wave structures should be simple and understandable. Complex structures are difficult to play with; they often bring changes.
2. If there is confidence in what is happening in the market, it is better to avoid entering it.
3. There is never a hundred percent certainty in the direction of movement. Don't forget about Stop Loss orders for protection.
4. Wave analysis can be combined with other types of analysis and trading strategies.