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The wave labeling for GBP/USD currently still looks complex. I mean that it does not resemble a classical corrective or impulse trend section. The peak of the current bullish wave has surpassed the peak of the last wave b. So, the entire bearish trend section, consisting of waves a-b-c, can be considered complete. Although it very faintly resembles the trend section over the same period in EUR/USD, we should acknowledge that both instruments have built downward three-wave sets of waves. If this assumption is correct, GBP/USD has begun a new bullish trend section. Since I can spot only one wave starting from March 8th, there is every reason to believe that the construction of a new trend section will take a long time. I still believe that both EUR/USD and GBP/USD should build similar wave layouts. If this is indeed the case, wave 2 or b for the pound sterling may be extended. At the same time, a downward three-wave move can be developed for the euro. Thus, I expect a deep wave b as it was the case with the construction of the previous three-wave move. Therefore, GBP/USD is expected to decline to 1.1850 or slightly higher.
GBP/USD traded sideways on Friday. In the first half of the day, demand for the British currency slightly decreased, but in the second half, it revived. As a result, the instrument closed both Friday and last trading week roughly at the same level, around the 0.0% Fibonacci level. Speaking about GBP/USD, it is also unclear whether the formation of the bullish wave will end at the current levels or if the bullish trend section, presumably starting on March 8th, will take a distinctly ascending direction. Economic data last week did not help the market answer this question, although the economic calendar was rather dense. The inflation report in the UK disappointed again, and unemployment data turned out to be worse than the market consensus.
On Friday, business activity and retail trade reports completed the important week for the pound. Business activity indices showed the same trend as in the European Union. The service sector expanded, while the manufacturing sector contracted. Retail trade volume decreased by 0.9% month on month and by 3.1% year on year. This is good for inflation, as consumer prices grow softer when demand decreases. However, the inflation indicator itself has not been decreasing much and continues to stay firmly above 10% on year. Friday's economic statistics could have reduced demand for the pound, which would have been quite appropriate for the current wave labeling. However, in the second half of the day, the market still found reasons for long positions on GBP/USD, even though American business activity reports turned out to be stronger than expected.
The wave pattern of GBP/USD suggests the construction of a new descending wave. The wave labeling is now ambiguous due to uncertain fundamental background. I don't see factors that would support the pound in the long term, hence, wave b could turn out to be very deep. I believe that a decline in the instrument is realistic now as all the waves recently have been roughly equal in size. I think that the currency pair can be traded now from 1.2440 which corresponds to the 0.0% Fibonacci level. Below it, we sell with targets 300-400 points lower, above it – we cautiously buy.
On the larger wave scale, the picture is similar to EUR/USD, but there are still some differences. At this time, the ascending corrective trend section is completed. However, the three-wave descending section may also be completed. The new ascending trend section may also consist of three-wave and be horizontal.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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