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25.01.2021 03:27 PM
Analysis of GBP/USD on January 25, 2021. How long is the pound going to grow?

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The section of the trend, which originates on September 23, took a five-wave completed form. However, the internal wave structure of the proposed 5-5 wave still does not look entirely convincing and may require additions and adjustments. Nevertheless, the upward trend has been nearing its end for a long time. The demand for the pound, however, remains quite high, and this factor can lead to further complications of the upward trend.

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On the younger chart, the wave counting has undergone certain changes and may need to be corrected again. At the moment, the instrument quotes may continue to rise within the wave 3-5-5. At the same time, the wave counting of wave 5-5 does not look entirely convincing. A successful attempt to break the 127.2% Fibonacci level indicates that the markets are ready for new purchases of the pound sterling, and the entire upward trend is likely to be complicated again.

If a month or two ago, only a few economists had questions about the rise in the pound sterling, now almost everyone feels the same way. The sterling continues to trade around the 37th figure and is not even able to build a strong corrective wave. This suggests that the demand for the pound remains very strong, but what are the reasons?

From the latest economic reports, only the unemployment rate could please the markets. GDP is expected to contract, business activity in the service sector fell to 38 points, and it is the service sector that is most important for the British economy. The Bank of England decided to calm down the markets and announced that it was not going to introduce negative rates soon, but this is unlikely to be considered "good news". But the pound sterling has a lot of bad news. You can start with the third "lockdown", end with a serious drop in business activity and the economy. Even Brexit can be forgotten once again. And all this news is simply not perceived by the markets.

If disappointing news from America came at the same time, one might conclude that the American ones are worse than the British ones. But this is not the case. Most of the news from the US is of a political nature. And now, since Biden came to power, there are no more controversial situations in Congress and Senate. The US economic reports are pretty good. This applies to inflation and business activity in all areas. There was no second or third lockdown in America, but they have already learned to live with the coronavirus. Thus, there is no answer to why the pound is growing. Considering, that there are no reasons, then there can be no answer when the increase in the instrument ends, either.

General conclusions and recommendations:

The GBP/USD continues to build the upward trend. Thus, at present, I recommend buying the pair in case of a successful attempt to break the 127.2% Fibonacci level with targets located near the 40th figure, within the expected 3-5-5 waves of the upward trend. So far, there are no clear signals about the end of the upward trend section.

Chin Zhao,
Analytical expert of InstaForex
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