GBP/USD. Analysis for August 1st. The pound’s growth depends on a 50 basis points rate increase
August 1, 2023 3:23 pm
The wave analysis for GBP/USD remains straightforward and clear. The ascending wave 3 or C has been completed, and there are indications of a new descending trend phase, potentially wave 4, in progress. The pound needs the foundation to continue its ascent (supported by various reports and events). However, the wave pattern has become more intricate, and wave 3 or C has taken on an extended form, contrary to many analysts’ expectations a few months ago. The ascending trend phase may adopt a five-wave form if the market discovers new reasons for long-term purchases.
The pound’s wave pattern now appears simpler and more convincing than the euro. In any case, I anticipate the continuation of the descending wave, which began as scheduled. Even if it represents the fourth wave within the ascending set of waves, it should be extensive or prominently structured with three waves. Three waves are already visible within it, and the current week is crucial due to the news background. Will the pound find reasons for a new rise?
The Bank of England must adopt a firm stance.
On Tuesday, the GBP/USD exchange rate declined by 70 basis points, and the decrease in demand for the pound lacked substantial grounds. The only report released in the UK was the business activity index in the manufacturing sector, which turned out to be slightly better than market expectations at 45.3 versus 45.0. Two more reports worth attention will be released later: the ISM business activity index for the manufacturing sector and the S&P index of the same nature. The former could rise to 46.8 points and the latter to 49. In both cases, an improvement in business activity is expected, which is crucial for the US economy, as it might continue to contract due to a “hawkish” monetary policy. The recovery of business activity may further support the dollar’s rise.
On the other hand, the pound currently requires a strong news background to resume its ascent. The Bank of England will hold a meeting on Thursday, but a 25 basis points rate increase is unlikely to satisfy the markets, as it is already priced in. Analysts agree that only an unexpected 50 basis points rate increase can restore demand for the pound. The pound’s dilemma lies in the fact that the demand for it remained high for an extended period. Although the Bank of England and the Federal Reserve almost equally increased their rates, the pound was more popular than the dollar. With the possibility of the British regulator softening its monetary approach, the demand for the pound might decrease, aligning with the current wave pattern.
General conclusions:
The wave pattern for GBP/USD suggests a decline. As the attempt to break through the level of 1.3084 (from top to bottom) was successful, my readers could initiate selling, as mentioned in my recent reviews. The current target is the level of 1.2618. However, there is a risk of completing the current descending wave if it is wave 4. In this case, a new rise within wave 5 may start from the current levels. This is not the most probable scenario, but this week’s news background is strong and may not support the US currency.
The pattern is similar to the EUR/USD pair on a larger wave scale, but some differences exist. The descending correctional trend section is complete, and the construction of a new ascending trend is ongoing, which may already be complete or may take on a complete five-wave form.
The material has been provided by InstaForex Company – www.instaforex.com
The wave analysis for GBP/USD remains straightforward and clear. The ascending wave 3 or C has been completed, and there are indications of a new descending trend phase, potentially wave 4, in progress. The pound needs the foundation to continue its ascent (supported by various reports and events). However, the wave pattern has become more intricate, and wave 3 or C has taken on an extended form, contrary to many analysts’ expectations a few months ago. The ascending trend phase may adopt a five-wave form if the market discovers new reasons for long-term purchases.
The pound’s wave pattern now appears simpler and more convincing than the euro. In any case, I anticipate the continuation of the descending wave, which began as scheduled. Even if it represents the fourth wave within the ascending set of waves, it should be extensive or prominently structured with three waves. Three waves are already visible within it, and the current week is crucial due to the news background. Will the pound find reasons for a new rise?
The Bank of England must adopt a firm stance.
On Tuesday, the GBP/USD exchange rate declined by 70 basis points, and the decrease in demand for the pound lacked substantial grounds. The only report released in the UK was the business activity index in the manufacturing sector, which turned out to be slightly better than market expectations at 45.3 versus 45.0. Two more reports worth attention will be released later: the ISM business activity index for the manufacturing sector and the S&P index of the same nature. The former could rise to 46.8 points and the latter to 49. In both cases, an improvement in business activity is expected, which is crucial for the US economy, as it might continue to contract due to a “hawkish” monetary policy. The recovery of business activity may further support the dollar’s rise.
On the other hand, the pound currently requires a strong news background to resume its ascent. The Bank of England will hold a meeting on Thursday, but a 25 basis points rate increase is unlikely to satisfy the markets, as it is already priced in. Analysts agree that only an unexpected 50 basis points rate increase can restore demand for the pound. The pound’s dilemma lies in the fact that the demand for it remained high for an extended period. Although the Bank of England and the Federal Reserve almost equally increased their rates, the pound was more popular than the dollar. With the possibility of the British regulator softening its monetary approach, the demand for the pound might decrease, aligning with the current wave pattern.
General conclusions:
The wave pattern for GBP/USD suggests a decline. As the attempt to break through the level of 1.3084 (from top to bottom) was successful, my readers could initiate selling, as mentioned in my recent reviews. The current target is the level of 1.2618. However, there is a risk of completing the current descending wave if it is wave 4. In this case, a new rise within wave 5 may start from the current levels. This is not the most probable scenario, but this week’s news background is strong and may not support the US currency.
The pattern is similar to the EUR/USD pair on a larger wave scale, but some differences exist. The descending correctional trend section is complete, and the construction of a new ascending trend is ongoing, which may already be complete or may take on a complete five-wave form.
The material has been provided by InstaForex Company – www.instaforex.com
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