25.05.2023 04:51 PM
Analysis of GBP/USD. May 25. The US labor market may begin to experience problem

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The wave labeling for the GBP/USD pair appears complex and ambiguous because it does not resemble a classical corrective or impulsive trend segment. The formation of a new upward trend segment in the pound continues. From March 8th to May 10th, I can only identify one wave of the current scale, so there is a reason to believe that forming the new trend segment will take a long time, and the segment itself will be very extensive.

Both pairs should build similar wave formations. If this is indeed the case, wave 2 or b in the pound may take an elongated form, while at the same time, a descending three-wave structure may be formed in the euro. Therefore, I expect a deep wave b, as was the case with the formation of the previous three-wave structure, where wave b made up 100% of wave a. Therefore, it can be expected that the pair will decline to the level of 1.1850 or slightly higher. At the moment, wave 1 or a has all the necessary grounds to be considered complete.

The Fed does not expect a "soft landing"

The GBP/USD exchange rate decreased by 30 basis points on Thursday. The amplitude of movements still needs to be higher, but the demand for the US currency is steadily increasing every day, which fully corresponds to the current wave labeling. In the current situation, even the news background is not too important, as the market pays more attention to wave labeling. Nevertheless, US statistics continue to support the dollar. Today, the GDP report was released, which I have already mentioned, and the report on the change in the number of initial claims for unemployment benefits. The latter report was stronger than expected by the market, which could also have influenced its bearish sentiment.

On Wednesday evening, the President of the Atlanta Federal Reserve, Raphael Bostic, gave a speech. He made several very important statements. I want to remind you that yesterday's FOMC minutes showed that not all committee members lean towards the need to complete the tightening procedure. Almost every day, the market receives confirmations that the rate may increase at the June meeting as well. Bostic stated that the FOMC would make policy decisions based on incoming data. He did not say that there is a high probability that the rate will no longer be increased. The head of the Atlanta Fed expects a decline in the labor market as the current policy of the regulator is restrictive. "There is no target rate level. If inflation decreases at the rates we expect, the Fed will move towards easing policy in 2024," Bostic said. Based on several statements from FOMC members and US statistics, the demand for the US currency may continue to rise.

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General conclusions.

The wave pattern of the GBP/USD pair has long been suggesting the formation of a descending wave. Wave b could be very deep, as all recent waves are approximately equal. A successful attempt to break the level of 1.2445, which corresponds to 100.0% Fibonacci, indicates market 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 more significant.

On a larger wave scale, the pattern is similar to the EUR/USD pair, but some differences remain. The descending corrective segment of the trend is completed, but at the moment, the formation of a descending wave may begin. And this wave could be deep and extensive while the entire trend segment remains horizontal, just like the previous one.

Chin Zhao,
Analytical expert of InstaForex
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