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The wave analysis for GBP/USD needs to be simplified and clarified. A successful attempt to break through the 50.0% Fibonacci level in April indicated the market's readiness to form a bearish wave 3 or c. Still, since then, we have only seen an upward movement. If this wave resumes its formation, the wave pattern will become much simpler, and the threat of complicating the wave count will disappear. However, in recent weeks, there has been a complete absence of decline in the instrument, which again raises doubts about the market's readiness for sales.
In the current situation, my readers can still count on the formation of wave 3 or c, with targets located below the low of wave 1 or a at the 1.2035 mark. Therefore, the pound should decrease by at least another 700-800 basis points from current levels. With such a decline, wave 3 or c will be relatively small, so I expect a much greater decline in quotes. It may take a lot of time to build the entire wave 3 or c. Wave 2 or b lasted for 5 months, and that was just a corrective wave. The last corrective wave turned out to be very prolonged, but the unsuccessful attempt to break above the 1.2822 mark again allows us to look downwards.
We are waiting for the second test of the 1.2627 mark.
The GBP/USD exchange rate did not change on Tuesday, and there was no significant news background. Based on these initial data, I expected a minimal price change today. The instrument tested the 1.2627 mark a couple of days ago, which corresponds to the 38.2% Fibonacci level, but the attempt to break through was unsuccessful. Since the market has indeed shifted to building a bearish wave within the downtrend, I expect the pound to decline. For this, a second test of the 1.2627 mark is needed, and possibly a third if necessary. However, in any case, the price will return to this mark, which will now act as a magnet. From the current price to this mark is only 60 basis points, a distance that the market can cover in one day.
How can the news background help the dollar this week? In my view, it cannot. There will be various statistics released in America, but nothing that could significantly affect market sentiment. GDP reports from the US and UK currently appear to be the most significant events, but a reaction to them should be expected if the first-quarter figures do not match market expectations. It would be preferable if they differed significantly – at least by 0.2-0.3%. Then, we can expect a reaction. If this reaction is unfavorable for the US currency, the price will return to the 1.2627 mark later on.
Conclusions
The wave pattern of the GBP/USD instrument still suggests a decline. Currently, I continue to consider selling the instrument with targets below the 1.2039 mark, as wave 3 or c has not been invalidated yet. Since the instrument has reversed around the 1.2822 mark, not far from the peak of the presumed wave 2 or b, selling the instrument can be considered with initial targets around the 1.2315 mark. However, caution is advised because confidence in a market sentiment shift to bearish will come after a successful attempt to break through the 1.2627 mark.
On a larger wave scale, the wave pattern is even more indicative. The descending corrective phase of the trend continues its formation, and its second wave has taken on an extensive form – 76.4% of the first wave. An unsuccessful attempt to break through this mark could have led to the beginning of constructing wave 3 or c, but currently, a corrective wave is forming.
Key Principles of My Analysis:
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