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Wave analysis

23.05.202419:36 Forex Analysis & Reviews: Analysis of GBP/USD pair on May 23rd. American reports saved the dollar

The wave pattern for GBP/USD remains quite complex. 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. If this wave continues to form, the wave picture will become much simpler, and the threat of complicating the wave pattern will disappear. However, in recent weeks, the pair has remained the same, raising doubts about the market's readiness for sales. The downward wave 3 or c may be extended, just like all previous waves of the current, still descending trend segment.

In the current situation, my readers can still count on wave 3 or c formation, with targets located below the low of wave 1 or a, at the 1.2035 mark. Consequently, the pound must drop 600-700 basis points from current levels. Such a decline would make wave 3 or c relatively small, so I expect a much larger drop in quotes. It may take a very long time to form the entire wave 3 or c. Wave 2 or b took 5 months to form, and it was only a corrective wave. Forming an impulse wave may take even more time.

Buyers give the dollar no chance

The GBP/USD rate declined by 5 basis points on Thursday, with the pair's volatility remaining low. The day is far from over, and the American session usually involves more active movements. Today's news background is very similar to that of the EUR/USD pair. British business activity indices, though not as optimistic as in the Eurozone, increased demand for the pound. In my opinion, the market didn't particularly need these statistics as the demand for the pound was growing even without news support. Nevertheless, the manufacturing PMI rose above the 50.0 mark, to which the market reacted.

However, positive American business activity reports also boosted demand for the US dollar in the afternoon. The wave picture needs to be clearer and more complicated by the day. Therefore, I can't say today's reports and movements clarified it. I still expect the formation of a new downward wave that will align with the current wave pattern. The market is in no hurry to sell the pound sterling, waiting for unclear reasons. The latest inflation report in the UK clarified everything. The Bank of England might start easing monetary policy earlier than the market expected, while the Fed may do so later. If this isn't a reason to sell the pair, what is?

General Conclusions

The wave pattern of GBP/USD still suggests a decline. I continue to consider selling the pair with targets below the 1.2039 mark, as wave 3 or c has not yet been canceled. A successful attempt to break the 1.2625 mark, equivalent to 38.2% Fibonacci, from above would indicate the possible completion of an internal corrective wave within wave 3 or c, which looks like a classic three-wave structure.

On the larger wave scale, the wave pattern is even more telling. The descending corrective segment of the trend continues to form, and its second wave has become extended, at 76.4% of the first wave. An unsuccessful attempt to break this mark could lead to the beginning of wave 3 or c, but a corrective wave is currently forming.

Basic Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to trade and often change.
2. If there is no confidence in the market situation, it's better not to enter.
3. There is never 100% certainty in the direction of movement. Always use protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.

*تعینات کیا مراد ہے مارکیٹ کے تجزیات یہاں ارسال کیے جاتے ہیں جس کا مقصد آپ کی بیداری بڑھانا ہے، لیکن تجارت کرنے کے لئے ہدایات دینا نہیں.

Chin Zhao,
Analytical expert of InstaSpot
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