FX.co ★ Analysis of GBP/USD pair on July 5, 2024

The wave pattern for GBP/USD remains quite complex and ambiguous. A successful attempt to break the 50.0% Fibonacci level in April indicated the market's readiness to form a downward wave 3 or c, but we have only seen increases since then. If this wave does resume formation, the wave pattern will become much simpler, and the threat of complicating the wave structure will disappear. However, in recent weeks, the decline of the instrument has been rather weak, with sellers unable to make a successful attempt to break even the nearest 38.2% Fibonacci level.

In the current situation, my readers can still expect the formation of wave 3 or c, with targets below the low of wave 1 or a, at the 1.2035 mark. Therefore, the pound should fall by at least another 700-800 basis points from the current levels. It may take a very long time to form the entire wave 3 or c. Wave 2 or b took 5 months to form, and it was just a corrective wave. The last corrective wave 2 or b in 3 or c was very prolonged, but the unsuccessful attempt to break the 1.2822 mark allows us to continue looking downward.

The Pound Returns to the 1.2822 Mark.

The GBP/USD rate rose by 20 basis points on Thursday and gained another 55 points today. In recent months, I have repeatedly written that I expect the instrument to decline despite the wave pattern constantly becoming more complicated. Even now, it remains relevant. The instrument may make another unsuccessful attempt to break the 1.2822 mark, leading to a new price decline. However, the longer time passes, the more news and data come from the US, and the more I observe the market's reaction, the more I am convinced that the American currency will not increase in value. For three consecutive months, US data has been disappointing. The market consistently expects stronger values from American statistics. The US economy is slowing down, with growth rates falling from 4.9% quarterly to 1.3%. The ISM business activity index has fallen below the key 50.0 mark. The unemployment rate continues to rise. According to ADP and Nonfarm Payrolls, the number of jobs is decreasing. The market no longer pays attention to the fact that the Fed has yet to start to lower the interest rate; otherwise, this factor would occasionally be played out.

Based on all the above, I am still staying within my expectations of a decline in the pound, and below the 1.2822 mark, the current wave pattern remains intact. However, everything is currently against the dollar. Both the news background and market sentiment. I am still determining what will sustain the pound's further growth if the wave pattern transforms into an upward trend, but with such data from America, the dollar certainly will not be in demand.

General Conclusions.

The wave pattern for GBP/USD still suggests a decline. I still consider selling the instrument with targets below the 1.2039 mark, as wave 3 or c is still not canceled. Around the 1.2822 mark, and near the peak of the supposed wave 2 or b, a new reversal may form, again allowing for expectations of a decline in the pound. However, there is no confidence in the market sentiment shifting to "bearish" now. A successful attempt to break the 1.2822 mark will put the current wave pattern on the verge of cancellation.

On a larger wave scale, the wave pattern is even more eloquent. The descending corrective segment of the trend continues to form, and its second wave has become extended – at 76.4% of the first wave. An unsuccessful attempt to break this mark could have led to the start of wave 3 or c, but a corrective wave is currently forming.

Key principles of my analysis:

1. Wave structures should be simple and understandable. Complex structures are hard to trade and often change.
2. If there is no confidence in the market situation, it's better not to enter it.
3. There is never 100% certainty in the direction of movement. Always use Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.