28.05.202417:09 Forex Analysis & Reviews: Analysis of GBP/USD pair on May 28, 2024

The wave analysis of GBP/USD remains quite complex. A successful attempt to break the 50.0% Fibonacci level in April indicated the market's readiness to form a descending wave 3 or c. If this wave continues to develop, the wave pattern will become much simpler, and the threat of complicating the wave structure will disappear. However, in recent weeks, the pair has remained strong, which raises doubts about the market's readiness to sell. Wave 3 or c could be quite extended, just like all previous waves of the current downward trend.

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, around the 1.2035 mark. Thus, the British pound should decrease by at least another 600-700 basis points from the current levels. With such a decline, wave 3 or c will be relatively small, so I expect a much larger drop in quotations. The entire formation of wave 3 or c may take a long time. Wave 2 or b took 5 months to form, and it was merely a corrective wave. The formation of an impulse wave may take even more time.

The dollar on the brink of collapse

The GBP/USD rate increased by another 10 basis points on Tuesday. This might seem insignificant, but yesterday, the pound added 30 points, and the day before that, another 40 points. With such small steps, the pair is now near the peak of the supposed wave 2 or b. A successful attempt to break this level will lead to a change in the current wave structure. Any corrective wave can reach up to 100% of the impulse wave. Beautiful wave structures are found only in textbooks; in real life, things are a bit different. No matter what trend I try to highlight now, the size of the corrective waves remains the same. Therefore, we are dealing with very complex and hard-to-explain movements.

There was no news background on Tuesday, although several FOMC members gave speeches in the US. Neil Kashkari and Michelle Bowman, in particular, made statements. Mr. Kashkari said that it is still time to lower rates and that the Fed should take time to ease monetary policy. Ms. Bowman noted that it is very important for the regulator to continue reducing the balance sheet (the QT program), although the pace of reduction could be slightly lowered. In any case, the discussion is about maintaining a "restrictive" policy.

The market needs to pay more attention to this information. Today, during the American session, the pair retreated slightly from the peaks reached earlier today, but this means nothing. A 25-point decline is too small for the currency market to conclude such a move. Therefore, as early as tomorrow or Thursday, the pound may resume its rise, which does not fit the current wave structure and does not match the news background, which is absent this week.

General Conclusions

The wave pattern of GBP/USD still suggests a decline. Currently, I am still considering selling the pair with targets below the 1.2039 mark, as wave 3 or c is not yet invalidated. A successful attempt to break the 1.2625 mark, equivalent to 38.2% by Fibonacci, from above will indicate the possible completion of the internal, corrective wave within wave 3 or c, which now appears as a classic three-wave pattern.

The wave pattern is even more telling on a larger wave scale. The downward corrective phase of the trend continues to develop, and its second wave has taken an extended form—76.4% of the first wave. An unsuccessful attempt to break this mark could have led to the beginning of wave 3 or c, but currently, a corrective wave is being formed.

Basic Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to trade and often change.
2. If there is confidence in the market, it is better to avoid entering it.
3. There can never be 100% certainty in the direction of movement. Remember protective orders like Stop Loss.
4. Wave analysis can be combined with other types of analysis and trading strategies.