06.11.202419:00 Forex Analysis & Reviews: Analysis of GBP/USD on November 6, 2024

The wave pattern of GBP/USD remains complex and continues to develop into a more extended structure. Currently, the successful breakout of wave b in c suggests that the market is prepared to form an entire downward trend, rather than just a single wave.

Since April 22, we have observed a series of a-b-c waves, within which smaller a-b-c waves can also be identified. Considering the wave pattern of EUR/USD, which indicates the formation of a downward wave set, now appears to be a favorable time for the GBP/USD pair to begin a new trend section. The pound remains influenced by the Bank of England, which is in no hurry to cut interest rates. However, the policies of the Bank of England and the Federal Reserve in the coming months do not indicate a weakening of the U.S. dollar. The market has been anticipating a Fed rate cut for an extended period, which has driven the dollar to significant lows. Now, I expect the U.S. currency to strengthen.

The GBP/USD pair dropped by 170 basis points on Wednesday but may recover some of the losses by the end of the day. As I mentioned earlier, today's movements were driven purely by market sentiment. Such volatile movements are often unstable and short-lived. Let me put it this way – the forex market is currently in a challenging phase due to the significant impact of recent news events. Major market participants are actively engaging, resulting in sharp, avalanche-like movements. Tomorrow, the outcomes of the FOMC and BoE meetings are expected to provide clarity. A calm trading day seems unlikely.

The situation would not be as uncertain if calm, neutral decisions could be expected from the Fed and the Bank of England. Both central banks are likely to cut rates by 25 basis points, but the focus now shifts to the signals they will provide to the market. For instance, if the Bank of England signals its readiness to ease monetary policy at every subsequent meeting, it could negatively impact the pound. Conversely, if the Fed highlights ongoing concerns about the U.S. labor market, it could weaken the dollar. The challenge lies in the fact that no one knows in advance what signals the central banks will convey to the market.

From my perspective, the current movements of the GBP/USD pair look highly appealing but also carry significant risks. I would advise avoiding trading during such volatile periods. If you enter short positions near the 1.3400 level, you can confidently hold these positions and wait. In other cases, I would not recommend entering the market with expectations of quick and substantial profits.

General Conclusions

The wave pattern of GBP/USD remains intricate. The current structure suggests that the trend section starting from April 22 may have taken the form of a-b-c, which might now be complete. From the 1.3440 mark, corresponding to 127.2% on Fibonacci, traders may consider gradually opening short positions. At present, it might be prudent to wait for a corrective upward wave and then attempt to sell the pair again during that wave. However, the decline could continue further within the framework of the first wave, which is now almost certain to be impulsive. The pair could potentially reach the 1.2800 level in the near future.

On a broader scale, the wave pattern has evolved. We can now assume the formation of a complex and extended upward corrective structure. At this stage, it appears to be a three-wave formation but could potentially transform into a five-wave structure, requiring several months or more to fully develop.

Key Principles of Analysis

1. Wave structures should be simple and understandable. Complex structures are difficult to trade and prone to frequent changes.
2. If you are uncertain about market movements, it is better to stay out.
3. Absolute certainty in market direction is never achievable. Always use protective Stop Loss orders.
4. Wave analysis can be effectively combined with other types of analysis and trading strategies.