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The wave analysis for the GBP/USD pair remains quite complex. A successful attempt to break the Fibonacci level of 50.0% indicated the market's readiness to build a downward wave 3 or c. If this wave continues its development, the wave pattern will become much simpler, and the threat of complicating the wave analysis will disappear.
As I have noted, the wave pattern should be simple and understandable. There needs to be more simplicity and understanding in recent months. For a long time, the pair was in a sideways trend, and only now is there a possibility of building an impulsive downward wave.
In the current situation, my readers can expect the construction of wave 3 or c, the targets of which are located below the low of wave 1 or a. Therefore, the pound should decline by at least 500–600 basis points from current levels. With such a decline, wave 3 or c will be relatively small, and I expect a much larger drop in quotes. After breaking through the 1.2469 mark (50.0% according to Fibonacci), sellers have removed the psychological barrier, but the American reports of recent weeks have forced sellers to pause until better times.
Sellers are quick to get back into the market.
The GBP/USD pair rate increased by 40 basis points on Monday. There was no news background today in the UK and the US, so the market continues to react to Friday's American statistics. All four reports were weaker than the market's expectations, although, in my opinion, they were not so bad. However, if this had been a one-off case, one could complain that the market is taking this package of statistics too seriously. However, over the past few weeks, we have seen many negative reports from the US. Business activity has declined not only in the service sector but also in manufacturing. The number of job openings is decreasing. GDP growth in the first quarter was much weaker than expected.
Certainly, there was positive news for the dollar as well. The Fed, represented by Jerome Powell, confirmed that there would be no changes in monetary policy in the coming months, and when the interest rate starts to decline in conditions of rising inflation, even the head of the Fed is hesitant to say. Markets are still waiting for at least a few rounds of easing from the American regulator this year, but I doubt they will wait. The consumer price index is already almost twice the target. It will take quite some time to slow down by just 1%. There may need to be more for the Fed to start discussing the possibility of rate cuts. In the EU, inflation is currently at 2.4%, and the ECB is still in no hurry to transition to a less "hawkish" policy.
General conclusions.
The wave pattern of the GBP/USD pair still suggests a decline. I am considering selling the pair with targets below the 1.2039 mark, as wave 3 or c is still developing. A successful attempt to break the 1.2472 mark, which corresponds to 50.0% according to Fibonacci, indicates the long-awaited readiness of the market to build a downward wave. An unsuccessful attempt to break the 1.2625 mark, which equates to 38.2% according to Fibonacci, will indicate the completion of the internal corrective wave as part of wave 3 or c.
On the larger wave scale, the wave pattern is even more eloquent. The downward correctional trend continues to develop, and its second wave has taken on an extended form - at 76.4% of the first wave. An unsuccessful attempt to break this mark could have led to the beginning of wave 3 or c construction, but at the moment, a corrective wave is being built.
The main principles of my analysis:
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