FX.co ★ Analysis of GBP/USD pair on May 31st. The PCE index also works against the dollar

For the GBP/USD pair, the wave analysis remains quite complicated. A successful attempt to break through the 50.0% Fibonacci level in April indicated that the market was ready to build a downward wave of 3 or C. If this wave continues its construction, the wave pattern will become much simpler, and the threat of complications in the wave analysis will disappear. However, the pair has remained the same in recent weeks, again making us doubt the market's readiness for sales.

In the current situation, my readers can still count on building wave 3 or c, the targets below the low of wave 1 or a, the mark of 1.2035. Consequently, the British dollar should decrease by at least 600-700 more base points from current levels. With such a decrease, wave 3 or c will be relatively small, so I expect a much larger drop in quotes. It may take a lot of time to build the entire wave 3 or c. Wave 2 or b has been under construction for 5 months, and this is only a corrective wave. Building a pulse wave can take even longer. The last corrective wave was very long, but it did not cease to be corrective. Therefore, I still expect the dollar to strengthen.

The dollar did not enjoy the favor of the market for a long time.

The GBP/USD exchange rate increased by 30 basis points on Thursday; today, it added another 30. Since its growth was 60 points on Wednesday, the pound has already won back all the losses this week. As I said, the market was forced to sell the US dollar yesterday, as the American economy showed a much weaker growth rate in the first quarter than expected. There was no news background in the UK today, but reports were released in the US that were satisfactory in their values. However, something in them did not like the market, and the dollar came under pressure again.

In particular, the price index of personal consumption expenditures (PCE) amounted to 0.2% month-on-month in April, while the market expected 0.3%. Market participants probably considered that inflation is slowing down, which increases the likelihood of a transition to a more dovish Fed monetary policy soon. This is not the case. Inflation remains too high to discuss an interest rate cut, and the PCE index alone cannot conclude a slowdown in core and core inflation. However, today, the market saw what it wanted to see. The American currency is still on the "black list" of the market, so it uses any reason to sell it. The wave analysis was again on the verge of a serious transformation.

General conclusions

The wave pattern of the GBP/USD pair still suggests a decline. At this time, I am still considering selling the pair with targets located below the 1.2039 mark, as wave 3 or c has yet to be canceled. Since the pair turned around the 1.2822 mark, corresponding to 23.6% Fibonacci, and near the peak of the expected wave 2 or b, the pair's sales can now be considered with the first targets around the 1.2315 mark. But very carefully, as the market is extremely reluctant to increase demand for the US currency.

At the higher wave scale, the wave pattern is even more eloquent. The downward correction section of the trend continues to build, and its second wave has acquired an extended appearance – by 76.4% of the first wave. An unsuccessful attempt to break through this mark could lead to the beginning of building 3 or c, but a corrective wave is currently being built.

The basic principles of my analysis:

1) Wave structures should be simple and understandable. Complex structures are difficult to play out; they often bring changes.

2) If you are not sure what is happening in the market, it is better to avoid entering it.

3) The direction of movement is not absolute, and it can never be. Do not forget about Stop-Loss protection orders.

4) Wave analysis can be combined with other analysis and trading strategies.