16.03.2023 07:40 PM
GBP/USD. Analysis for March 16, 2023

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The wave analysis for the pound/dollar pair now appears to be challenging, but it 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 predict that the downward part of the trend has begun and will continue to develop, taking at least a three-wave form. Although Wave B appeared to be unnecessarily prolonged, it did not cancel. Wave c is also becoming more complex and has an unnecessarily protracted, unfinished appearance. This wave's issue is that it can now end at any time. Wave c can be regarded as finished because the low of wave a has been updated. Of course, I anticipate a more significant drop in the value of the pound, but it should be emphasized that forecasts do not always come true. The events of last week and the start of this week might have an impact on market participants. It is now in doubt how wave C will be built with targets so close to the 14th figure. It is challenging enough to separate the internal waves even within the c wave itself to determine what stage the structure is in.

On Thursday, the pound/dollar exchange rate increased by 50 basis points. The demand for the pound changed during the day, increasing then dropping, and the news background was complex and ambiguous. First of all, the ECB recently declared its viewpoint. Although the pound is slightly influenced by the European regulator, it frequently happens that the euro pulls the pound and vice versa. The American reports were also difficult to understand. While there were fewer initial claims for unemployment benefits, the number of development permits exceeded market forecasts. Overall, market participants were unimpressed by these figures because the Philadelphia manufacturing index came in weaker than expected. I think the pound did not show anything particularly noteworthy today, and we would have seen the same movements of the pair even in the absence of any news context.

I believe that for now, we should focus on the meetings between the Fed and the Bank of England that will take place the next week. The markets won't get an explanation this week regarding how to trade the pound/dollar pair. There won't be much news for the pound tomorrow if the euro has a good chance of continuing its development because a report on European inflation for February will be released on Friday. The market is confused because the pair has been trading horizontally for a considerable amount of time and frequently changes its movement vector. Everyone will be expecting further "hawkish" decisions and remarks from the two central banks next week, but they will also be poised for surprises, as they were today.

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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. At this point, it is possible to take into account sales with targets situated around the 1.1641 level, which corresponds to 38.2% by Fibonacci, in light of the MACD indicator's "down" reversals. The peaks of waves e and b could be used to place a Stop Loss order. Wave c might be shorter in duration, but for the time being, I anticipate a minimum 300–400 point decline.

The picture resembles that of the euro/dollar pair at higher wave scales, but there are still minor distinctions. 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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