GBP/USD. Analysis for October 18th. Disappointing inflation in the UK again
October 18, 2023 5:23 pm
For the pound/dollar pair, the wave analysis remains relatively simple and clear. The construction of a new downtrend segment continues, with the first wave dragging on significantly. In my opinion, the British pound has no grounds to resume the upward trend segment; therefore, I do not even consider such a scenario. I would like to remind you that there are no specific target sizes for waves. The first wave can be constructed for as long as necessary without any restrictions. Currently, everything indicates that this wave is complete, but there is still a certain probability of its further extension.
The internal wave structure of the first wave of the new trend segment looks complex, and it is difficult to discern five waves within it. However, five waves are visible on the euro currency. If the construction of the bearish wave set is completed on the euro, then there is an 80% probability that it will be completed on the pound as well. The first wave on the euro has been completed with a high degree of probability. The demand for the pound has been declining for more than two months, so I expect the construction of a three-wave upward wave 2 or b.
Financial performance in the UK leaves much to be desired.
The exchange rate of the pound/dollar pair decreased by 15 basis points on Wednesday, but here, too, the amplitude of movements was very weak. Such market activity was due to the relatively weak news background on Wednesday as well as the fact that a corrective wave 2 or b is being constructed. Corrective waves are often weak and slow. My opinion regarding the construction of a corrective wave has not changed, and the cancellation of this scenario would be a successful attempt to break the level of 1.0462 against the euro. I believe that both pairs will complete the construction of the corrective wave simultaneously, but for the pound, there is no clear level that would allow us to draw a corresponding conclusion. In any case, wave 2 or b currently looks quite unconvincing.
Inflation in the UK continues to disappoint the Bank of England, which is waiting for it to decrease, not just to 2% but at least to 5%. Undoubtedly, over the next few years, the British regulator will do everything possible to bring inflation back to 2%, but for now, this plan looks too optimistic. The Bank of England raised the rate to 5.25%, and its possibilities are not limitless. This rate was enough to reduce inflation to 6.7% y/y. Perhaps this figure will decrease by another 1% in the coming months, but what happens next? How will inflation slow down further?
The market reacted to the inflation report with weak sales because the report did not change much. The Bank of England will not tighten its policy; inflation did not decrease in September. There was nothing for the market to react to. The report on building permits also did not affect market sentiment because its value did not differ significantly from expectations.
General conclusions.
The wave pattern of the pound/dollar pair suggests a decline within the new downtrend segment. The maximum that the pound can expect in the near future is the construction of wave 2 or b. But, as we can see, even with the corrective wave, there are significant problems at the moment. I would not recommend new sales right now, but I also do not recommend buying because the corrective wave may turn out to be quite weak.
On a larger wave scale, the picture is similar to the euro/dollar pair, but there are still some differences. The descending corrective segment of the trend continues its construction, and its first wave has already taken on an extended form and has nothing to do with the previous upward trend segment.
The material has been provided by InstaForex Company – www.instaforex.com
For the pound/dollar pair, the wave analysis remains relatively simple and clear. The construction of a new downtrend segment continues, with the first wave dragging on significantly. In my opinion, the British pound has no grounds to resume the upward trend segment; therefore, I do not even consider such a scenario. I would like to remind you that there are no specific target sizes for waves. The first wave can be constructed for as long as necessary without any restrictions. Currently, everything indicates that this wave is complete, but there is still a certain probability of its further extension.
The internal wave structure of the first wave of the new trend segment looks complex, and it is difficult to discern five waves within it. However, five waves are visible on the euro currency. If the construction of the bearish wave set is completed on the euro, then there is an 80% probability that it will be completed on the pound as well. The first wave on the euro has been completed with a high degree of probability. The demand for the pound has been declining for more than two months, so I expect the construction of a three-wave upward wave 2 or b.
Financial performance in the UK leaves much to be desired.
The exchange rate of the pound/dollar pair decreased by 15 basis points on Wednesday, but here, too, the amplitude of movements was very weak. Such market activity was due to the relatively weak news background on Wednesday as well as the fact that a corrective wave 2 or b is being constructed. Corrective waves are often weak and slow. My opinion regarding the construction of a corrective wave has not changed, and the cancellation of this scenario would be a successful attempt to break the level of 1.0462 against the euro. I believe that both pairs will complete the construction of the corrective wave simultaneously, but for the pound, there is no clear level that would allow us to draw a corresponding conclusion. In any case, wave 2 or b currently looks quite unconvincing.
Inflation in the UK continues to disappoint the Bank of England, which is waiting for it to decrease, not just to 2% but at least to 5%. Undoubtedly, over the next few years, the British regulator will do everything possible to bring inflation back to 2%, but for now, this plan looks too optimistic. The Bank of England raised the rate to 5.25%, and its possibilities are not limitless. This rate was enough to reduce inflation to 6.7% y/y. Perhaps this figure will decrease by another 1% in the coming months, but what happens next? How will inflation slow down further?
The market reacted to the inflation report with weak sales because the report did not change much. The Bank of England will not tighten its policy; inflation did not decrease in September. There was nothing for the market to react to. The report on building permits also did not affect market sentiment because its value did not differ significantly from expectations.
General conclusions.
The wave pattern of the pound/dollar pair suggests a decline within the new downtrend segment. The maximum that the pound can expect in the near future is the construction of wave 2 or b. But, as we can see, even with the corrective wave, there are significant problems at the moment. I would not recommend new sales right now, but I also do not recommend buying because the corrective wave may turn out to be quite weak.
On a larger wave scale, the picture is similar to the euro/dollar pair, but there are still some differences. The descending corrective segment of the trend continues its construction, and its first wave has already taken on an extended form and has nothing to do with the previous upward trend segment.
The material has been provided by InstaForex Company – www.instaforex.com
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