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The wave analysis for the GBP/USD pair remains quite complex, but it may become simpler in the coming weeks. A successful attempt to break through the Fibonacci level of 50.0% indicates the market's readiness to build a downward wave 3 or C. If this wave continues its formation, the wave pattern will become much simpler, and the threat of complicating the wave analysis will disappear.
As I noted, the wave pattern should be simple and understandable. There needs to be more simplicity and understanding in recent months. The pair was in a sideways movement for a long time and only now has real chances to build an impulsive wave.
In the current situation, my readers can only hope for the formation of wave 3 or C, the targets of which are below the low of wave 1 or A. Therefore, the pound should decrease by another minimum of 500-600 basis points. The news background supports the American currency, and after breaking through the 1.2469 mark (50.0% according to Fibonacci), the psychological blockade has been removed from sellers.
The dollar may finally spread its wings.
The GBP/USD pair rate rose by 55 basis points on Monday but lost all its advantage at the beginning of the American session. At this time, the report on retail sales for March was released in America, which exceeded market expectations almost twice – 0.7% versus 0.4% on a monthly basis. I will try to understand what this report means for the American currency.
If retail sales are growing in volume, it means that demand is increasing. If demand is rising, companies can raise prices and increase production volumes. Rising prices mean inflation. And the Fed is fighting inflation. Moreover, over the past year, quite passively and unsuccessfully. In other words, the FOMC decided that a rate of 5.5% would be sufficient to keep inflation under pressure and slowly move towards the target level. FOMC members have repeatedly stated that a high rate will have a long-term impact on the economy, the labor market, unemployment, and inflation. However, the impact has been less strong and as long-lasting. The US economy continues to grow (although at a slower pace), the unemployment rate has increased slightly, the labor market continues to please with stable job creation, and inflation stopped slowing down last summer.
Based on the above, the Fed will almost certainly keep the rate at its peak. Now, the question should be posed differently. Is it time for the Federal Reserve to consider a new interest rate hike? Even if the Fed does not take such a step, the peak value will be maintained for a long time. The GBP/USD pair currently tends to decline (i.e., the dollar is rising) as it has left the sideways movement it has been in for several months.
General conclusions.
The wave pattern of the GBP/USD pair still suggests a decline. At the moment, I am still considering selling the pair with targets below the 1.2039 mark, as wave 3 or C is beginning its formation. A successful attempt to break through the 1.2472 mark, which corresponds to 50.0% according to Fibonacci, indicates the long-awaited readiness of the market to build a downward wave.
On a larger wave scale, the wave pattern is even more eloquent. The downward correctional trend section continues its formation, and its second wave has acquired an extended form – by 76.4% of the first wave. An unsuccessful attempt to break through this mark could have led to the beginning of the formation of wave 3 or C.
The main principles of my analysis:
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