31.07.202419:23 Forex Analysis & Reviews: Analysis of GBP/USD. July 31. Will the Fed Steer the Dollar Back on Track?

The GBP/USD exchange rate rose by just ten basis points on Wednesday. The wave pattern for GBP/USD remains quite complex and ambiguous. For a while, the wave picture looked quite convincing, suggesting the formation of a downward wave set with targets below the 1.2300 level. However, the demand for the U.S. currency grew too strong for this scenario to materialize. Currently, the wave pattern has become completely unreadable. I prefer using simple structures in my analysis because complex ones have too many nuances and ambiguous points. Right now, we see an upward wave that overlaps a downward wave, which overlaps a previous upward wave, which overlaps a previous downward wave. The only assumption that can be made is an expanding triangle with an upper point around the 1.3000 level and a balance line around the 1.2600 level. Two weeks ago, the upper line of the triangle was reached. The unsuccessful attempt to break it indicates the market's readiness to build a downward wave set. The pound is ready to continue falling, but new grounds are needed. The GBP/USD exchange rate rose by just ten basis points on Wednesday. The amplitude of movement today was again minimal, as was market activity. Participants did not even consider reacting to the ADP report in the U.S., which turned out to be objectively worse than expected. The pound stagnated around the 1.2822 mark, corresponding to 23.6% Fibonacci. Since there have already been two attempts to break through this mark (both unsuccessful), it can be considered strong support for GBP/USD. This support may not hold as early as this evening. According to the overall market sentiment, the Fed is expected to hint at a possible interest rate cut at the next meeting in September. I do not believe the U.S. regulator will conduct the first round of easing in September, but the market does. Therefore, if hints are received, the demand for the U.S. currency may decrease. If not, the market may break through the 1.2822 mark on the third attempt. I am actually worried not about specific signals from the Fed to the market. I am concerned that the market will again see something not really there. The latest GDP report for the second quarter shows that the U.S. economy is in excellent condition, allowing the Fed to wait a bit longer. The FOMC does not need to rush due to the market's "wants." I remind you that the market has been yearning for a rate cut in the U.S. since the beginning of the year, but it can only dream about it for now. The GBP/USD decline will continue to 1.2600, where the "balance line" passes. Maybe not today, but next week. The market is clearly in no hurry right now.

General Conclusions

The wave pattern of GBP/USD still suggests a decline. If a new upward trend segment began on April 22, it has already assumed a five-wave form. Therefore, we should now expect at least a three-wave correction. The unsuccessful attempt to break the upper line of the triangle indicates the market's readiness to build a downward wave set. Sales of the pair should be considered in the near future, with targets around 1.2820 and 1.2627, corresponding to 23.6% and 38.2% Fibonacci levels.

On a higher wave scale, the wave pattern has transformed. Now, we can assume the construction of a complex and extended upward corrective structure. It is a three-wave pattern, but it can also transform into a five-wave structure, taking several more months, or even longer, to build.

Key Principles of My Analysis:

• Wave structures should be simple and clear. Complex structures are difficult to trade and often change.
• If there is no confidence in the market situation, it is better to avoid entering it.
• There can never be 100% certainty in the direction of movement. Remember protective Stop Loss orders.
• Wave analysis can be combined with other types of analysis and trading strategies.