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There will be quite important events for the pound in the upcoming week. The market has only started to reduce its fear of selling the British currency, and now it is crucial that the news background does not affect the market's desire to sell the pound and buy the dollar. To achieve this, as you might guess, a weak news background from the UK and a strong one from the US are necessary.
In the UK, data on the unemployment rate, changes in average wages, inflation, and retail sales will be released. These reports are strong enough to influence market sentiment. Let's see what the market expects from these indicators.
The unemployment rate may rise to 4%, average wages may increase by 5.8% in February (higher than in January), the inflation rate may decrease to 3.0-3.2%, and retail sales may increase by 0.2-0.3%. Undoubtedly, the inflation report will be of key importance. If the Consumer Price Index slows down from the current 3.4%, demand for the British currency may weaken further.
In the coming months, the relationship between British and US inflation will be significant. If the British CPI falls below the US one, it would be reasonable to assume that the Bank of England has a higher chance of being the first to lower interest rates. Consequently, the market may become even more bearish.
The report on wages is also highly important. If the pace of wage growth starts to increase, inflation in the UK may also begin to rise. Wages determine consumers' ability to spend more money and stimulate producers and service providers to raise their prices. Therefore, stronger wage growth will have a positive impact on the British pound.
However, overall, I expect the pound to fall further, as the current news background supports the US currency. While individual reports may support demand for the pound, the market has long believed in a positive outcome with the Federal Reserve's rate cuts. At the moment, the pound doesn't have any good reason to firmly strengthen against the dollar.
Based on the conducted analysis of EUR/USD, I conclude that a bearish wave set is being formed. Waves 2 or b and 2 in 3 or c are complete, so 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 1.0463 mark, as the news background works in the dollar's favor. The sell signal we need near 1.0880 was formed (an attempt at a breakthrough failed).
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 will begin to form. A successful attempt to break 1.2472, which corresponds to 50.0% Fibonacci, indicates that the market is ready to build a descending wave.
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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