21.03.2023 07:23 PM
GBP/USD. Analysis for March 21, 2023

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The wave analysis for the pound/dollar pair now appears to be challenging but does not call for any clarifications. The wave patterns for the euro and the pound differ somewhat, but both point to a decrease. Our five-wave upward trend section has the pattern a-b-c-d-e and is most likely already finished. I anticipate that the downward trend's development, which will at least take the form of three waves, is currently ongoing. Since the pair went below the low of wave a, wave c has taken on an extended form and can already be finished. Naturally, I anticipate a more pronounced decrease in British quotes, but it should be remembered that expectations do not always correspond to reality. The pair may transform the downward section of the trend, which began on December 13, into a five-wave correction, but it may also be finished. The pound has seen an increase in demand recently for a variety of reasons. Yet, the current rise in quotes could be a wave d in a downward trend segment, and the decline could continue at any time.

The pound/dollar exchange rate fell by 25 basis points on Tuesday, and it has different dynamics and amplitude from the euro/dollar exchange rate. As I've already stated, the first two days of the week will only be remembered for Christine Lagarde's speeches in which she stated that since inflation may remain high for some time, the ECB must keep raising interest rates. Several ECB employees, on the other hand, have already voiced their support for slower rate hikes. The majority of the Board of Governors is now leaning towards gradually raising the rate while carefully examining the new economic data. This, I believe, implies taking the bare minimum of monetary policy tightening. On Tuesday, though, the euro is rising while the pound is not. We need to sort it out.

On Thursday, the Bank of England is anticipated to increase the rate by 25 basis points. The proportion of committee members who support a rate increase may fall to 6 out of 9 in the March meeting. As a result, the Bank of England might soon stop tightening at all. Inflation in the UK is still falling extremely slowly in the meantime. It may fall to 9.8-9.9% in February, which is only 0.2-0.3% less than in January. I believe that this is a very gradual fall, and the Bank of England is also easing off on its tightening. When all of this is considered, it may indicate that the British regulator is failing to handle excessive inflation. With such a background in the headlines, the pound might start to retreat soon. It already stopped growing on Tuesday, and it might even show a reduction tomorrow and the day following. But, wave d (assuming this is it) might end up being more powerful.

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Conclusions in general.

The development of a downward trend section is implied by the wave pattern of the pound/dollar pair. According to the "down" reversals of the MACD indicator, sales with targets at the 1.1641 level, or 38.2% by Fibonacci, may be taken into account at this time. The peaks of waves e and b could be used to place a Stop Loss order. Wave c may have already been finished, but in this event, I anticipate the development of a downward wave e with targets 400-500 points lower than the current levels.

The picture resembles that of the euro/dollar pair at higher wave scales, but there are still minor differences. The upward correction part of the trend has now been finished. If this presumption is true, then we should expect the downward part will continue to be built for at least three waves, with the possibility of a decline in the area of 14–15 figures.

Chin Zhao,
Analytical expert of InstaForex
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