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The wave pattern for GBP/USD continues to indicate the formation of an upward impulsive wave structure. The wave picture is almost identical to that of the EUR/USD pair. Until February 28, we observed the formation of a convincing corrective structure with no doubts. However, thereafter, demand for the U.S. dollar started to decline sharply, ending with a trend reversal upward. Wave 2 of this trend took the form of a single wave. Within the presumed wave 3, waves 1 and 2 have already formed. Thus, we should now expect a new rise of the pound within wave 3 of 3 — and this is exactly what we are observing.
It's important to remember that currently, much in the currency market depends on Donald Trump's policies. Even if positive news comes from the U.S., the market constantly factors in the overarching economic uncertainty, Trump's contradictory decisions, and the White House's hostile and protectionist stance. Thus, the dollar has to work very hard to turn even good news into increased demand in the market.
The GBP/USD exchange rate rose by 25 basis points on Wednesday but could rise much more today and through the end of the week. This week, market participants have already received several news items that could be considered "dollar killers." Notably, starting today, tariffs on imported steel and aluminum in the U.S. have been raised from 25% to 50%. This measure by Trump does not affect the U.K., as it remains one of the few countries with a potential trade deal on the horizon. Thus, a trade deal with Britain is another reason for the market to increase demand for the pound. While the deal won't significantly impact the U.S. trade balance, Britain would avoid additional tariffs and could potentially have all American tariffs removed if an agreement is signed.
Additionally, on Monday, the U.S. ISM Manufacturing PMI came in weaker than expected and below the 50.0 level. On Tuesday, the JOLTS report was decent, but on Wednesday, the ADP report showed only 37,000 new jobs versus the 115,000 expected by the market. Meanwhile, both U.K. business activity indices showed positive dynamics. Thus, two out of the three most important American reports disappointed the dollar, while two out of two U.K. reports supported the pound. Several more key U.S. reports are due by week's end, but if the trend continues, demand for the dollar will likely continue to decline. It's already evident that nothing is really preventing the pound from continuing to appreciate. The market seems to be savoring the opportunity to buy the pair without overwhelming the dollar every single day.
The wave pattern for GBP/USD has transformed. We are now dealing with an upward impulsive trend segment. Unfortunately, under Donald Trump, markets may face many more shocks and reversals that do not conform to wave patterns or any type of technical analysis. However, for now, the working scenario and wave structure remain intact. The formation of an upward wave 3 continues, with near-term targets at 1.3541 and 1.3714. Thus, I continue to consider buying opportunities, as the market has not yet shown signs of wanting to reverse the trend again.
On the higher wave scale, the wave structure has also transformed. We can now assume the formation of an upward trend segment, which at this point does not yet appear complete. For now, further gains can be expected.
The Main Principles of My Analysis:
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