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Wave analysis

09.05.202415:55 Analisis Forex & Kajian: Analysis of GBP/USD pair on May 9th. Andrew Bailey did all he could

The wave analysis for the GBP/USD pair remains quite complex. A successful attempt to break through the Fibonacci level of 50.0% indicated the market's readiness to build a downward wave 3 or C. If this wave continues to develop, the wave pattern will become much simpler, and the threat of complicating the wave analysis will disappear.

As I noted, the wave pattern should be simple and understandable. There has been little simplicity and understanding in recent months. For a long time, the pair was in a sideways movement, and only now has the opportunity arisen to build an impulsive downward wave.

In the current situation, my readers can expect the formation of wave 3 or C, the targets of which are below the low of wave 1 or A. Therefore, the pound should decline by at least 500–600 basis points from the current levels. With such a decline, wave 3 or C will be relatively small, and I expect a much greater decline in quotes. After breaking through the 1.2470 level (50.0% Fibonacci), the psychological barrier has been lifted from the sellers, but the recent US labor market reports have prompted sellers to pause until better times.

The Bank of England was convincing, but the market interpreted it differently.

The GBP/USD rate rose slightly on Thursday, as it declined in the first half of the day. It rose after the Bank of England's meeting results were announced. I do not doubt that by the end of the day, we will see a new decline in the pound, as the regulator's statements are "dovish." No, Andrew Bailey and the other policymakers did not decide to lower rates in May, but it is important what mood they had during this decision. And their mood was expressed in the words, "In the coming quarters, we will begin to soften monetary policy."

Mr. Bailey was quite open at the press conference. He stated that inflation will approach the target level in the coming months, and a rate change in June cannot be completely ruled out. Therefore, the Bank's governor hinted to the market that the regulator is considering reducing the rate now. At the same time, the Fed is not even considering easing its policy, as inflation in the US is moving away from the target level.

Mr. Bailey also stated that the Bank of England has achieved good results in reducing inflation and that the restrictive policy works. All this tells us that the mood of British policymakers is "dovish." Therefore, I consider today's rise in the pound strange, but I continue to expect its decline. The market has failed to break through the 1.2470 level, equivalent to 50.0% Fibonacci. When a successful attempt occurs, I will reconsider short positions. The current wave analysis still does not provide grounds to assume the formation of an upward trend segment.

General conclusions

The wave pattern of the GBP/USD pair still suggests a decline. At this time, I am still considering selling the pair with targets below the 1.2039 level as wave 3 or C continues to develop. The unsuccessful attempt to break through the 1.2625 level, equivalent to 38.2% Fibonacci, indicates the completion of the internal corrective wave within 3 or C. However, the 1.2470 level still holds back the pressure from sellers, hindering the pound's downward movement.

On a larger wave scale, the wave pattern is even more eloquent. The downward correctional segment of the trend continues to develop, and its second wave has taken on an extended form - to 76.4% of the first wave. An unsuccessful attempt to break through this level could have led to the start of the formation of 3 or C, but at this time, a corrective wave is being formed.

The main principles of my analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to play out and often change.
2. If there is confidence in what is happening in the market, it is better to avoid entering it.
3. There is never 100% certainty about the direction of movement. Don't forget about Stop-Loss protective orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.

* Analisis pasaran yang disiarkan di sini adalah bertujuan untuk meningkatkan kesedaran anda, tetapi tidak untuk memberi arahan untuk membuat perdagangan.

Chin Zhao,
Analytical expert of InstaSpot
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