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The wave analysis for GBP/USD needs to be simplified and more clear. A successful attempt to break through the 50.0% Fibonacci level in April indicated the market's readiness to form a downward wave 3 or C, but since then, we have only seen an increase. If this wave does resume its formation, the wave pattern will become much simpler, and the threat of complicating the wave count will disappear. However, in recent weeks, the instrument has shown a complete absence of decline, which raises doubts again 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 1.2035. Therefore, the Pound should decline by at least another 700-800 basis points from current levels. With such a decline, wave 3 or C would be relatively small, so I expect much greater declines in quotes. It may take a lot of time to build the entire wave 3 or C. Wave 2 or B took 5 months to form, and it was just a corrective wave. The last corrective wave turned out to be very prolonged, but the unsuccessful attempt to break above 1.2822 allows us to look down again.
British inflation continues to fall while the pound continues to rise.
The GBP/USD instrument rose by 30 basis points during the first half of Wednesday, only to begin declining during the US session. By the end of the day, the pound will be significantly lower than the opening levels. However, I would like to note the market's initial reaction to the UK inflation report.
This report (like any other) can be viewed from different angles. In recent months, the market has only used the angle that justifies increased demand for the British Pound. Inflation in the UK slowed to 2% in May, while core inflation dropped to 3.5%. Now, let's look at the contradictions in these figures. Both figures fully matched market expectations. In this case, there should be no decline or increase in the Pound. However, it is important to note not only the conformity to forecasts but also the actual value of the indicator, which will have certain consequences. Tomorrow, the Bank of England will hold a meeting where it could cut interest rates. I do not believe in this scenario (I think another BoE meeting will be required), but it is important to understand that there are grounds for a rate cut already. Therefore, today, we learned not only about the inflation decrease to the target level but also that the Bank of England may start easing policy, unlike the Fed. If this information does not reduce demand for the Pound, then it is difficult to say what could.
General Conclusions
The wave pattern of the GBP/USD instrument still suggests a decline. At this time, I continue to consider selling the instrument with targets below 1.2039, as I believe wave 3 or C has yet to be canceled. Since the instrument reversed near 1.2822 and not far from the peak of the presumed wave 2 or B, selling the instrument can be considered with initial targets around 1.2315. But be very cautious, as it is still difficult to be confident in a bearish market sentiment shift.
On a larger wave scale, the wave pattern is even more eloquent. The descending corrective phase of the trend continues to develop, with its second wave reaching 76.4% of the first wave. An unsuccessful attempt to break this level could have led to the beginning of wave 3 or C, but currently, a corrective wave is being formed.
Key principles of my analysis:
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