Forex Analysis & Reviews: 25.09.2024 - Analysis of GBP/USD pair on...

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25.09.2024 04:21 PM

Analysis of GBP/USD pair on September 25th. The Market Continues to Increase Long Positions

The wave analysis for GBP/USD remains quite complex and continues to evolve. Initially, the wave pattern seemed quite convincing, suggesting a formation of a downward wave set targeting below the 1.23 level. However, in practice, the demand for the British pound continues to grow, disrupting any wave patterns. The market tirelessly continues to increase long positions.

Currently, I can only assume a significant complication of the upward trend section that began on April 22. Some corrective waves might be classified on a smaller scale (as substructures), thereby increasing the number of major upward waves. Assuming the current movement is impulsive, it appears we are in the major third wave that started on August 8. If this assumption holds, we have seen waves 1 and 2 within it. Therefore, there is substantial room for further growth in the pound.

The Pound Is Resilient in Any Market Conditions

The GBP/USD rate had decreased by 10 basis points on Wednesday but was likely to make substantial gains by the end of the day and close in positive territory. This mirrors Monday's pattern, where the pound began the day lower but ended with strong growth. Neither Monday's nor today's news background supported the strengthening of the pound. On Tuesday, the British currency also appreciated without any clear reasons.

Currently, the market relies on a single factor to continually increase long positions: the expectation that the Federal Reserve will rapidly cut rates. According to the CME FedWatch tool, there is currently a 62% probability of a 50 basis point rate cut in November. Notably, only a week has passed since the last Fed meeting, and no new economic data has emerged to suggest a worsening of either the labor market or overall economic conditions. Also, there has been no new inflation data to indicate a further decrease. Therefore, it remains unclear why the market is so confident of a 50 basis point cut, especially after Jerome Powell explicitly stated last week that the easing in September was not a "regular step."

However, market participants expect at least a 75 basis point cut by the end of the year, which is far less than what the Bank of England can afford. Consequently, demand for the U.S. dollar continues to decline, even though there have been no new negative reports from the U.S. Next week, key U.S. economic data will be released, potentially shifting the market's focus. If the labor market and unemployment figures once again show unsatisfactory results, another decline in the dollar could drive the pair towards the 1.36 level.

General Conclusions

The wave structure of GBP/USD continues to grow more complex. If the upward trend that started on April 22 initially seemed to be in a five-wave form, it could extend much further. I still find selling the instrument more attractive, but it requires clear signals. Currently, I am confident a new upward wave is beginning. The immediate target for this wave is the 1.3440 level, corresponding to 127.2% on the Fibonacci scale. A successful breakthrough at this mark could even set the market's sights on the 1.38 level.

On a larger wave scale, the pattern has transformed, now suggesting the formation of a complex and prolonged upward corrective structure. It is currently a three-wave pattern, but it could evolve into a five-wave structure, which might take several more months or even longer to complete.

Key Principles of My Analysis:

Wave structures should be simple and understandable. Complex structures are challenging to trade and often change.
If there is uncertainty about market movements, it's better to stay out of the market.
There is never 100% certainty about the direction of movement. Always remember to set protective Stop Loss orders.
Wave analysis can be combined with other forms of analysis and trading strategies.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.