12.04.2024 04:53 PM
GBP/USD. Analysis for April 12th. A significant event: the pound fell below the 25-figure

The wave analysis for the GBP/USD pair remains quite complex. For several months now, we have observed movements between Fibonacci levels of 50.0% and 23.6%. Horizontal movement is not the best for wave analysis. As I have already noted, the wave pattern should be simple and clear to work with. Currently, there needs to be more simplicity and understanding in it. If the presumed wave 2 or b is indeed complete, then at the moment we are witnessing the formation of the expected wave 3 or c. However, there are many doubts about this scenario because the market is still sideways.

Moreover, only the pound is in a sideways trend. The euro, which usually trades similarly 80% of the time, is in the process of building a downtrend. From this fact, we can understand that something is wrong with the British pound. It's evident to the naked eye; therefore, trading the pound is associated with increased risks. In the current situation, my readers can only continue to hope for the formation 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 another minimum of 600 basis points.

The pound fell again, but doubts about the continuation of the decline remain

The GBP/USD rate rose by 15 basis points on Thursday and lost 85 today. The news background for the pound today was not weak; reports on GDP and industrial production for February in the UK were more positive than negative. However, this and last week, the market had enough reasons to start selling the GBP/USD pair after several months. Market participants long believed and hoped that the Fed would eventually start lowering rates. Not in March, not in June, but in the foreseeable future. However, the US inflation report this week shattered those hopes to pieces. Now, the first easing can be expected in the fall or even winter. By that time, even the Bank of England may start cutting rates.

Since the market, by and large, was wrong about the Fed rate, it is now forced to admit its own mistake. The pound has held high for a long time because the market expected the Fed to lower rates in the near future and the Bank of England to cut rates anytime soon. Now, it is clear that the FOMC not only has no reason to rush with policy easing, but the US economy is in such good shape that rates can be kept at peak levels until the end of the year. And even if, by then, the US economy slows to zero growth rates, it will only mean something if inflation remains above 3% at the same time. The "hawkish" policy will continue to be supported by FOMC members.

General conclusions

The wave pattern of the GBP/USD pair still suggests a decline. At the moment, I am still considering selling the pair with targets below the 1.2039 level, as wave 3 or c will sooner or later develop. However, until wave 2 or b is completed with one hundred percent certainty. A successful attempt to break through the 1.2472 level, which corresponds to 50.0% Fibonacci, may indicate the long-awaited readiness of the market to build a downward wave.

On a larger wave scale, the wave pattern is even more eloquent. The descending correctional section of the trend continues to be built, and its second wave has taken on an extended form - at 76.4% of the first wave. An unsuccessful attempt to break through this level could have led to the beginning of the construction of wave 3 or c.

The main principles of my analysis:

  1. Wave structures should be simple and understandable. Complex structures are difficult to play out; they often bring changes.
  2. If there is confidence in what is happening in the market, it is better to avoid entering it.
  3. There is no one hundred percent certainty in the direction of movement, and there never will be. Remember protective stop-loss orders.
  4. Wave analysis can be combined with other types of analysis and trading strategies.
Chin Zhao,
Analytical expert of InstaForex
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