For GBP/USD, the wave count continues to indicate the formation of an upward trend segment (bottom chart), but over the past six months it has taken on a complex and extended form (top chart). The trend segment that began on July 1 can be considered wave 4, or any global corrective wave, since it clearly has a corrective rather than an impulsive internal wave structure. The same applies to its internal sub-waves. The downward wave structure that started on September 17 has taken the form of a five-wave a-b-c-d-e pattern and has been completed. The instrument is now in the stage of forming a new upward wave set.
Of course, any wave structure can become more complex and extended at any moment. Even the presumed wave 4, which has already been forming for six months, could turn into a five-wave structure, in which case we would be observing a correction for several more months. However, at the current moment, the market has a good chance of forming an upward wave set. If this is indeed the case, then the first two waves of this segment have already been completed, and we are now observing the formation of wave 3 or C, which is taking on an impulsive form and gives hope for an impulsive nature of the current wave set.
The GBP/USD pair moved within a range of about 15 basis points on Friday. The news background today was indeed weak, especially compared with the scale of events and reports released during the week. However, I should note that even during the week the market was in no hurry to open positions. More precisely, we certainly saw some activity, but on any chart we can also see sideways movement. The market alternated between buying and selling, and in the end failed to decide what to do next.
As I have already said, the key reports were those on the U.S. labor market and unemployment, which can be classified more as a negative than a positive for the dollar. Meanwhile, the U.S. consumer price index effectively gave the Fed the green light for another round of monetary policy easing. I doubt that this round will take place as early as January, but inflation is declining to applause from the White House. Therefore, another interest rate cut would be quite logical.
However, inflation is also falling in the United Kingdom, and at a fairly rapid pace. Thus, the Bank of England also has the opportunity to continue easing policy next year. The question is: which of the two central banks will cut its rate more aggressively? In my view, demand for the U.S. currency will continue to decline in 2026, but for now we are still observing alternating corrective wave sets. There is a possibility that the latest upward segment is impulsive, but there is not much confidence in that. Wave 4 may well become even more extended. Unfortunately, the current week did not provide a clear answer to the question of who is currently in a more positive mood—the pound or the dollar.
General Conclusions
The wave picture for GBP/USD has changed. We continue to deal with an upward, impulsive trend segment, but its internal wave structure has become complex. The downward corrective structure a-b-c-d-e within C in wave 4 appears to be complete, as does wave 4 as a whole. If this is indeed the case, I expect the main trend segment to resume, with initial targets around the 38 and 40 levels.
In the short term, I expected the formation of wave 3 or C with targets near 1.3280 and 1.3360, corresponding to the 76.4% and 61.8% Fibonacci levels. These targets have been reached. Wave 3 or C is still continuing to form, but three unsuccessful attempts to break through the 1.3450 level, which corresponds to the 61.8% Fibonacci level, are cause for concern.
The higher-timeframe wave count looks almost perfect, even though wave 4 moved beyond the high of wave 1. However, I would remind you that ideal wave counts exist only in textbooks. In practice, everything is much more complicated. At the moment, I see no reason to consider alternative scenarios to the upward trend segment.
Core Principles of My Analysis
- Wave structures should be simple and clear. Complex structures are difficult to trade and often signal changes.
- If there is no confidence in what is happening in the market, it is better not to enter it.
- There is no and cannot be 100% certainty about the direction of movement. Do not forget about protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
