Analysis of GBP/USD on May 11. The Bank of England raised the rate by 25 basis points
May 11, 2023 3:23 pm
The wave analysis for the GBP/USD pair still looks complicated because it does not look like a classical correction or impulse trend section. Since the peak of the current ascending wave went beyond the peak of the last wave b, the entire downward trend section, consisting of waves a-b-c, can be considered complete. Therefore, a new ascending trend section continues to be constructed for the pound. Since March 8, I can only single out one wave of the current scale, so there are all kinds of reasons to assume that forming a new trend section will take a lot of time.
Both pairs should construct similar wave formations. If this is the case, then wave 2 or b for the pound may be extended, and at the same time, a descending three-wave structure can be constructed for the euro. Thus, I expect a deep wave b, as in the case of the formation of the previous three waves. Therefore, you can expect the pair to decline to the 1.1850 mark or slightly higher. However, at the moment, wave 1 or a still needs to look complete.
The market ignored the meeting.
The GBP/USD exchange rate fell by 15 basis points on Thursday, and the amplitude of the pair was 35 points. Such weakness in movements indicates that the market could have been more impressed with the results of the Bank of England meeting. The British regulator did not make any unexpected decisions or make any global statements. The interest rate, as expected, rose by 25 basis points, which the market expected, two managers voted against the increase (which the market also expected); and the Bank of England’s statement said that “a stronger tightening of monetary policy may be required.” These are the results of the most anticipated event this week.
Markets could only pay attention to the last phrase. “If inflationary pressure proves more persistent, a more prolonged tightening of policy may be required.” This phrase tells us that the British regulator, which half a year ago predicted a long and deep recession for at least 2 years, is now full of optimism. The rate has risen to 4.5%; the British economy has not yet entered a recession and may well avoid one. Therefore, the regulator gets an additional opportunity to raise the rate, as there is no other way at the current level of inflation.
Inflation in the UK continues to remain above 10%. The inflation forecast for the end of the current year has been raised to 5.12%. It should also be noted that markets expect to see the final rate at 4.8%, implying 1 or at most 2 more hikes. This forecast is correct, and there will be no stronger policy tightening. Demand for the pound should no longer increase, as the Bank of England is close to completing the tightening process.
General conclusions.
The wave picture of the GBP/USD pair has long suggested the formation of a new downward wave. The wave analysis, as well as the news background, is somewhat unambiguous. I do not see factors that support the pound in the long term, and wave b can turn out to be very deep, but it has not even started yet. A decrease in the pair is more likely now, but the first wave of the ascending section continues to get complicated. The failed attempt to break through the 1.2615 mark, which corresponds to 127.2% according to Fibonacci, indicates the market’s readiness for sales.
The picture is similar to the EUR/USD pair on the older wave scale, but there are still some differences. The downward corrective section of the trend is complete, but at this time, the formation of a downward wave may begin. And this wave can turn out to be deep and prolonged, and the entire trend section – is horizontal, like the previous one.
The material has been provided by InstaForex Company – www.instaforex.com
The wave analysis for the GBP/USD pair still looks complicated because it does not look like a classical correction or impulse trend section. Since the peak of the current ascending wave went beyond the peak of the last wave b, the entire downward trend section, consisting of waves a-b-c, can be considered complete. Therefore, a new ascending trend section continues to be constructed for the pound. Since March 8, I can only single out one wave of the current scale, so there are all kinds of reasons to assume that forming a new trend section will take a lot of time.
Both pairs should construct similar wave formations. If this is the case, then wave 2 or b for the pound may be extended, and at the same time, a descending three-wave structure can be constructed for the euro. Thus, I expect a deep wave b, as in the case of the formation of the previous three waves. Therefore, you can expect the pair to decline to the 1.1850 mark or slightly higher. However, at the moment, wave 1 or a still needs to look complete.
The market ignored the meeting.
The GBP/USD exchange rate fell by 15 basis points on Thursday, and the amplitude of the pair was 35 points. Such weakness in movements indicates that the market could have been more impressed with the results of the Bank of England meeting. The British regulator did not make any unexpected decisions or make any global statements. The interest rate, as expected, rose by 25 basis points, which the market expected, two managers voted against the increase (which the market also expected); and the Bank of England’s statement said that “a stronger tightening of monetary policy may be required.” These are the results of the most anticipated event this week.
Markets could only pay attention to the last phrase. “If inflationary pressure proves more persistent, a more prolonged tightening of policy may be required.” This phrase tells us that the British regulator, which half a year ago predicted a long and deep recession for at least 2 years, is now full of optimism. The rate has risen to 4.5%; the British economy has not yet entered a recession and may well avoid one. Therefore, the regulator gets an additional opportunity to raise the rate, as there is no other way at the current level of inflation.
Inflation in the UK continues to remain above 10%. The inflation forecast for the end of the current year has been raised to 5.12%. It should also be noted that markets expect to see the final rate at 4.8%, implying 1 or at most 2 more hikes. This forecast is correct, and there will be no stronger policy tightening. Demand for the pound should no longer increase, as the Bank of England is close to completing the tightening process.
General conclusions.
The wave picture of the GBP/USD pair has long suggested the formation of a new downward wave. The wave analysis, as well as the news background, is somewhat unambiguous. I do not see factors that support the pound in the long term, and wave b can turn out to be very deep, but it has not even started yet. A decrease in the pair is more likely now, but the first wave of the ascending section continues to get complicated. The failed attempt to break through the 1.2615 mark, which corresponds to 127.2% according to Fibonacci, indicates the market’s readiness for sales.
The picture is similar to the EUR/USD pair on the older wave scale, but there are still some differences. The downward corrective section of the trend is complete, but at this time, the formation of a downward wave may begin. And this wave can turn out to be deep and prolonged, and the entire trend section – is horizontal, like the previous one.
The material has been provided by InstaForex Company – www.instaforex.com
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