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The wave analysis for the GBP/USD pair remains quite complex but may become clearer in the coming weeks. A successful attempt to break the Fibonacci level of 50.0% indicates the market's readiness to build a downward wave 3 or C. If this wave indeed continues its formation, the wave pattern will become much simpler, and the threat of complicating the wave analysis will disappear.
As I have already noted, the wave pattern should be simple and understandable for effective trading. There needs to be more simplicity and clarity in recent months. For a long time, the pair has been in a sideways trend and only now has real chances of forming an impulsive downward wave.
In the current situation, my readers can expect the formation of wave 3 or C, with targets located below the low of wave 1 or A. Therefore, the pound should decline by at least 300–400 basis points. With such a decline, wave 3 or C will be relatively small, and I expect a much larger drop in quotes. The news background supports the US dollar, and after breaking through the 1.2469 mark (50.0% Fibonacci), the psychological barrier has been lifted from the sellers.
The pound is not ready to decline without news support. The GBP/USD pair rate increased by 75 basis points on Tuesday. Partly, the increase in demand for the British currency was caused by a positive report on business activity in the service sector for April. However, I also draw my readers' attention to the fact that the second indicator (for the manufacturing sector) slowed down from 50.3 points to 48.7. Therefore, the overall package of statistics from Britain cannot be considered positive. The strengthening of the pound may also be associated with an unsuccessful attempt to break the 1.2313 mark, corresponding to 61.8% Fibonacci. It's no secret that no pair can constantly fall into a downtrend. Yesterday, the price encountered a strong level, so we saw a retreat from the reached lows. However, this does not affect the current wave analysis and the formation of a downward wave 3 or C.
In America today, business activity indices were also released. And here, things were much worse than in Britain. Both business activity indices showed a decrease. In the service sector, from 51.7 points to 50.9, and in the manufacturing sector, from 51.9 points to 49.9. The market clearly did not expect such a decrease in indicators in prosperous America, so demand for the US dollar sharply declined in the second half of the day. I don't believe these reports will put an end to further dollar strengthening, but business activity indices are considered "leading indicators" of the state of the economy. If they fall, there is a high probability that the economy will slow down. The US economy has been slowing down in the last two quarters, but it is not critical yet. However, if this situation continues in the future, GDP may start approaching zero.
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 is beginning its formation. A successful attempt to break the 1.2472 mark, corresponding to 50.0% Fibonacci, indicates the long-awaited readiness of the market to build a downward wave.
On a larger wave scale, the wave pattern is even more eloquent. The descending correctional segment of the trend continues its formation, and its second wave has taken on an elongated form - to 76.4% of the first wave. An unsuccessful attempt to break this mark could have led to the beginning of the formation of wave 3 or C.
The main principles of my analysis:
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