25.05.202600:54 Forex Analysis & Reviews: British Pound. Week Preview

The British pound is approaching the new week in good spirits, having avoided a decline last week despite everything pointing to the contrary. I remind you that last week, all UK economic data came in weaker than market expectations. Therefore, if GBP/USD had declined by the end of the week, no one would have called that movement strange. However, the previous week saw the conclusion of a strong and fairly prolonged downward wave, which may be the first part of a new downward section of the trend. Accordingly, a corrective wave seemed imminent, which we did see.

The question "what's next?" now takes on a completely unusual color. According to the current wave marking, the pound has begun constructing a minimum three-wave corrective structure, which should complete below the minimum of the first wave, 1.3301. Thus, we are in for a new decline of the pound. However, today Donald Trump once again reported that the framework agreement with Iran is practically complete and that the parties may sign it soon, agreeing to unblock the Strait of Hormuz, lift some sanctions on Iran, and unfreeze some of its accounts in foreign banks. At the same time, Trump stated that there is still a long way to go to a final agreement with Tehran, and military actions may resume with a 50% probability.

Based on this, the construction of an upward wave may continue next week, as geopolitical developments provided grounds for a decline in demand for U.S. currency over the weekend. However, after that, the GBP/USD instrument must resume its decline, and in this case, geopolitics must sharply worsen again. Simply put, new negotiations must fail just as the previous ones did, Iran and the U.S. must exchange missile strikes, and the Strait of Hormuz must again be blockaded. The level of uncertainty remains very high, so I admit to any scenario, and predicting beyond a week ahead makes no sense. Geopolitical reality changes too frequently and too rapidly.

In the UK, there is only a speech planned by Bank of England Governor Andrew Bailey for next week, but it will take place on Friday. Bailey may comment on the April inflation slowdown to 2.8% and suggest to the market whether to expect any easing of monetary policy from the central bank this year.

Wave Picture for EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument remains within an upward section of the trend and, in the short term, within a corrective structure. The corrective wave set a-b-c appears to be complete. Consequently, the construction of wave 3 or C continues, which may be part of wave C. The entire wave C (if the current wave marking is correct) may complete its formation much below the 14 figure. However, such a scenario will require strong geopolitical support. Otherwise, the downward wave set may take the form of a-b-c and be completed around the 1.1578 mark.

Wave Picture for GBP/USD:

The wave picture for the GBP/USD instrument has become clearer over time. We now see a distinct upward structure on the charts, which is complete. Therefore, I expect a downward wave set to form, which may take an impulsive form and align with the impulsive structure of the EUR/USD instrument. Consequently, after a decline of 300 pips, a corrective wave can be expected, followed by a new drop towards the 30-31 figures. I had warned in advance about the new decline of the pound, but I expected a correction. Since geopolitics changes character practically every week, none of the wave scenarios can be 100% certain.

Main Principles of My Analysis:

1. Wave structures should be simple and clear. Complex structures are difficult to play out and often involve changes.
2. If there is no certainty about what is happening in the market, it is better not to enter it.
3. There is no 100% certainty in the direction of movement, and there never will be. Don't forget about protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.