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29.08.2024 03:41 PM
Analysis of GBP/USD pair on August 29, 2024

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The wave analysis for GBP/USD has become increasingly complex and ambiguous. For a while, the wave pattern looked convincing and suggested the formation of a bearish wave set with targets below the 1.2300 level. However, in practice, demand for the U.S. dollar increased too much for this scenario to materialize. And it continues to grow.

Currently, the wave pattern has become almost unreadable. I typically use simple structures in my analysis, as complex ones have too many nuances and ambiguous points. We now see an upward wave that has overlapped a downward wave, which overlapped a previous upward wave, which overlapped a previous downward wave (all these waves are within a triangle). The only assumption we can make is an expanding triangle with an upper point around 1.3000 and a balancing line around 1.2600. However, another upward wave that does not fit any wave pattern has driven the quotes above the triangle. The bottom chart shows an alternative wave count.

The market has found a new reason to buy.

The GBP/USD exchange rate decreased by 35 basis points on Thursday, which is very little given the news background received just today. At least two FOMC members expressed doubts about the appropriateness of a rate cut at the September meeting. A couple of hours ago, the U.S. GDP report for Q2 was released. The US economy grew by 3.0%, not 2.8% as previously estimated. I'm not even mentioning the fact that the US economy accelerated more than twice compared to Q1. Therefore, I believe that the U.S. dollar's 35 basis point gain is insignificant; it should rise significantly more by the end of the day. In addition to the bearish wave that has been forming over the past few weeks, I do not expect anything but a decline in the pair. I won't attempt to trade any other movement given the current news background.

The second report in the U.S. today was on jobless claims. However, the value of this report was almost in line with market expectations, so there was no reaction. Overall, like some other analysts, I believe that the dollar is too oversold, and the market is pricing in the next five rounds of Fed policy easing, although there are no guarantees that the rate will be cut even in September. I think that further increases in the instrument will not make sense, so I would not advise trading such movements.

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Summary:

The wave pattern for GBP/USD still suggests a decline. Given that the upward trend segment began on April 22 and has already taken on a five-wave form, we should now expect at least a three-wave correction. In my view, selling the pair with targets around 1.2627 should be considered in the near future. However, there are currently no signals indicating the end of the last upward wave, but the formation of a corrective wave can still be expected.

On a larger wave scale, the wave pattern has transformed. We can now assume the construction of a complex and extended upward corrective structure. Currently, it is a three-wave structure, but it could transform into a five-wave structure, which may take several more months or even longer to complete.

Main Principles of My Analysis:

  1. Wave structures should be simple and understandable. Complex structures are difficult to trade and often undergo changes.
  2. If you lack confidence in your market analysis, it is better not to enter a trade.
  3. Absolute certainty in the direction of movement is neither possible nor ever will be. Remember to use protective Stop Loss orders.
  4. Wave analysis can be combined with other types of analysis and trading strategies.
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