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29.05.2023 05:47 PM
Analysis of GBP/USD. May 29. The Bank of England's rate forecasts remain unchanged

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The wave analysis for the GBP/USD pair still needs to be simplified and clarified. It does not resemble a classical corrective or impulsive trend segment. Currently, the formation of an upward trend segment continues for the British pound, and from March 8 to May 10, I can identify only one wave of the current scale. Therefore, forming a new trend segment will take a long time and be extensive.

Both pairs should build similar wave formations. If this is indeed the case, wave 2 or b for the British pound may take on an extended form, while at the same time, a downward three-wave structure may be constructed for the euro. Thus, I expect a deep wave b, as in the case of the formation of the previous three-wave structure, where wave b amounted to 100% of wave a. Therefore, we can expect a decline in the pair towards the 1.1850 level or slightly above. At the moment, wave 1 or a has all the necessary grounds to be considered complete.

A quiet Monday, but there is interesting news

The GBP/USD exchange rate remained unchanged on Monday. When writing this article, the amplitude of the day is 17 points. Essentially, there is no movement in the market. As mentioned in the previous article, today is Memorial Day in America, and the markets are closed, resulting in low activity. Nevertheless, there is still news to report. I previously mentioned the agreement between Biden and McCarthy regarding the US national debt in the euro review. Still, Credit Suisse (the bank that could have gone bankrupt a couple of months ago) has published an updated forecast for the Bank of England's interest rate. Now, the bank's economists believe that the rate in the UK will increase twice more at the next two meetings in June and August. Therefore, the rate could rise to 5% this year. The bank also stated that they do not expect a rate cut in 2023, and inflation forecasts have been raised. The economists of the Swiss bank also mentioned that the latest inflation report has caused them to raise their expectations for interest rates and inflation itself. I want to remind you that the main indicator has slowed down, but the core indicator has significantly increased.

Those who regularly read my articles know that I expect the British regulator to raise the rate by another 1-2 times by 25 basis points. Most market participants share this view as well. Credit Suisse reported that the market is pricing in a stronger tightening of monetary policy, but that's not the case. Demand for the British pound has been declining for several weeks now, and it's unlikely to be a reaction to a hawkish scenario. The 1-2 rate hikes mentioned earlier are likely already priced in. The pair may continue to decline.

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General conclusions.

The wave pattern of the GBP/USD pair has long suggested the formation of a downward wave. Wave b could be very deep since all recent waves are approximately equal. A successful attempt to break through the 1.2445 level, which corresponds to 100.0% Fibonacci, indicates the market's readiness for selling. Based on this, I also recommend selling the British pound with targets around the 23 and 22 figures. However, the decline will likely be stronger.

The picture is similar to the EUR/USD pair on a larger wave scale, but there are still some differences. The downward corrective trend segment is complete, but a downward wave could start forming. This wave could be deep and extensive, and the entire trend segment could be horizontal, just like the previous one.

Chin Zhao,
Analytical expert of InstaForex
© 2007-2024
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