07.01.202516:48 Forex Analysis & Reviews: Analysis for GBP/USD on January 7, 2025

The wave pattern of the GBP/USD pair remains somewhat ambiguous but generally understandable. Currently, there is a high probability of forming a long-term downward trend segment. The current wave 5 has taken on a more convincing form, meaning the larger first wave may be completed soon (or is already completed). If this is the case, a series of corrective waves targeting around the 28th figure and above may begin (or has already begun) shortly.

The pound continues to focus on the Bank of England, which is in no hurry to lower rates, although this factor alone is not particularly supportive. The UK economy consistently disappoints market participants with its data, while the state of the U.S. economy strengthens confidence in the dollar. Inflation is also a key factor, which, under Donald Trump, could spike, forcing the Federal Reserve to keep rates above neutral. The FOMC has officially stated that policy easing in 2025 will be minimal. Meanwhile, the market has already priced in the most dovish scenario for the dollar.

The GBP/USD pair rose by 25 basis points on Tuesday. The pound's strengthening on Monday seemed somewhat odd given the weak news backdrop, but what's done is done. On Tuesday, buyers were much more reserved, and the pound may not receive similar support for the rest of the week. In the UK, there will be virtually no news in the coming days. Therefore, GBP/USD dynamics will depend entirely on U.S. news. The pound has taken the first step toward forming a corrective wave structure, which could stretch over several weeks. However, the next step depends on factors outside the UK or the British currency.

Today, the pound has every chance of retreating if the U.S. ISM Services PMI comes in above 53.3 points. I do not think this will happen. The index was recorded at 52.1 points in November, so in December, it would need to increase by at least 1.3–1.5 points for demand for the U.S. dollar to rise significantly. While not impossible, it seems unlikely. A softer PMI reading is more likely. However, if the index falls below 53.3, demand for the dollar may continue to decrease, raising questions for pound buyers. If they fail to push the pair higher, the pound could quickly lose all the gains made on Monday.

General Conclusions

The wave pattern of GBP/USD indicates that the downward trend segment is continuing, but its first wave may be completed. I previously discussed selling around the 1.3440 level. Now, it might be better to wait for at least one convincing corrective wave to form before looking for new entry points for selling, targeting below the 1.2300 level. Corrections could take a considerable amount of time, so the 1.2500 level is unlikely to be the peak for the pound.

On the higher wave scale, the wave structure has transformed. We can now assume a downward trend segment is forming, as the previous three-wave upward structure has clearly ended. If this assumption is correct, the completion of the corrective wave should lead to a new decline in the pound.

Key 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 certainty about market conditions, it is better to stay out.
3. There is never 100% certainty in the direction of movement. Always use Stop Loss orders.
4. Wave analysis can be combined with other forms of analysis and trading strategies.