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The British pound is clearly following in the euro's footsteps, or perhaps it's the other way around. The pound's recent rise also raises some questions and is ambiguous in nature. The wave pattern is very complex and unclear. Overall, there are many questions regarding the pound. In my opinion, a sustained rise will contradict not only the wave pattern but also the news background. Take note that we can consider April as a "black" month for the dollar, not only because of its decline against the euro and pound but also in terms of macro data. Most of the key economic reports from the US fell short of expectations, so the market had some reasons for selling the dollar.
However, in my opinion, it's not all that simple and clear-cut. I believe the most important factor was, is, and will be the interest rates of the Federal Reserve and the Bank of England. It is very important to understand that the Fed will not start easing monetary policy when the market expected it to and still expects it to. At the beginning of the year, it was March, then June, and now it's September. I believe that it will happen by at least December.
Let's also pay attention to the news background. Wednesday will be quite important for the pound. The inflation report for April will be released, and we might expect surprising information that will immediately resolve all the ambiguity in the current wave pattern. Inflation for April is expected to be 2.1% year-on-year. Consequently, compared to March, it may slow down by 1.1%. The market cannot react to this report yet, as the pound is rising, and such a sharp decline in inflation means that the BoE might actually start easing policy as early as June, along with the European Central Bank. This can exert significant pressure on the pound, but it would fully correspond to the current wave pattern.
At the same time, everything will depend on the market itself. If we see a repeat of the situation from the beginning of this year, the demand for the pound will increase regardless of the data. The UK will release business activity indices on Thursday, which will be much less significant for the market than inflation. I believe that the GBP/USD pair has a chance of falling.
Based on the conducted analysis of EUR/USD, I conclude that a bearish wave set is being formed. In the near future, I expect an impulsive downward wave 3 in 3 or c to form with a significant decline in the instrument. I am considering short positions with targets near the 1.0462 mark. An unsuccessful attempt to break through the 1.0880 mark, which corresponds to 61.8% by Fibonacci, may indicate that the market is ready to sell.
The wave pattern of the GBP/USD instrument suggests a decline. I am considering selling the instrument with targets below the 1.2039 level, because I believe that wave 3 or c is being formed. A successful attempt to break 1.2625, which corresponds to 38.2% Fibonacci from above, will indicate the completion of an internal, corrective wave 3 or c, which looks like a classic three-wave pattern right now.
Wave structures should be simple and understandable. Complex structures are difficult to work with, and they often bring changes.
If you are not confident about the market's movement, it would be better not to enter it.
We cannot guarantee the direction of movement. Don't forget about Stop Loss orders.
Wave analysis can be combined with other types of analysis and trading strategies.
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