Recently, the pound has been engaged in building an internal corrective wave as part of the presumed bearish 3 or c. Unlike the EUR/USD instrument, the wave 3 or c for the British pound still looks somewhat unconvincing, possibly due to its relatively short length. Nonetheless, demand for the pound is decreasing, albeit at a slow pace. In order to work out the current wave structure, the instrument must fall further. In this case, the news background must be strong for the dollar, not the other way around. The US recently released disappointing reports, which prevented sellers from returning to the market. On Friday, the euro was falling at a higher rate than the British pound.
There will be very few significant events in the UK. Market participants may only look to the release of the final values of business activity indices in the services and manufacturing sectors. In my opinion, these reports will have no impact on market sentiment. Therefore, the market will focus on US events. In particular, the Federal Reserve meeting. However, I will discuss these events in a separate review.
The British pound is hoping that the Fed maintains its hawkish stance, and relies on the current wave pattern. Sellers will have to resolve a very important issue – breaking through the level of 1.2471, which corresponds to 50.0% Fibonacci retracement. If they succeed, the pound will continue to fall to the level of 1.2312, which is equal to 61.8% Fibonacci retracement. The internal wave structure of the presumed 3 or c is not yet clear. Most likely, this wave will take on a more complex and prolonged form.
Based on all of the above, for those, like myself, who expect the pound to fall, it is advisable to wait for a successful attempt to break through 1.2471. Buying the instrument in the current circumstances is not something I would do, although the British pound may well continue to move in the opposite direction to what is expected. I want to remind you that the British pound was in a sideways trend from November to April. And this already means that movements did not fully correspond to the news background. At the moment, we shouldn't rule out the repetition of this scenario.
Wave analysis for EUR/USD:
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 1.0462 mark, as the news background works in the dollar's favor. A successful attempt to break 1.0637, which is equal to 100.0% Fibonacci, will indicate that the market is ready for new short positions.
Wave analysis for GBP/USD:
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 has started 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.
Key principles of my analysis:
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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