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19.02.2025 07:21 PM
GBP/USD Analysis – February 19th

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The wave pattern for GBP/USD remains somewhat ambiguous but generally clear. There is still a high probability of a long-term downward trend, though some uncertainty surrounds the assumed wave 2 in 1, which appears unconvincing. However, wave 5 looks well-defined, leading to the conclusion that the larger wave 1 is complete. If this assumption holds, the market is currently forming a series of corrective waves, with targets near the 1.26 and 1.28 levels. The first two waves in this structure appear to be complete, while the third may conclude at any moment.

Since the euro is likely still forming a corrective wave, it makes sense to expect a similar structure in the British pound. A crucial factor to consider is that the Bank of England (BoE) is preparing for four rate cuts in 2025, whereas the Federal Reserve (Fed) does not plan to cut rates by more than 50 basis points. The UK economy has repeatedly disappointed markets, while the U.S. economy continues to boost confidence in the dollar. These factors should deter mass dollar selling and limit excessive pound buying.

GBP/USD declined 15 basis points on Wednesday, but the retreat from recent peaks is still too weak to confirm the end of wave C in 2. Currently, this wave appears fully formed: wave A in 2 and wave C in 2 both exhibit a three-wave structure. This suggests that a small upward move is still possible, but the overall wave structure indicates that a decline could begin at any moment. The key question is whether this will be wave D in 2 or wave 3. Either way, I continue to anticipate further downside, with the current peak and potential wave E in 2 serving as entry points for short positions.

The market had an opportunity to increase demand for the pound today following the release of UK inflation data. The Consumer Price Index (CPI) jumped to 3.0% y/y, exceeding the forecast of 2.8%. Core inflation also accelerated by 0.5%, reaching 3.7%, although markets were already anticipating this scenario. Regardless of whether traders were prepared, the fact remains that inflation surged unexpectedly. This suggests that the BoE may slow its pace of rate cuts in 2025, which could have provided support for the pound. However, if wave 2 is indeed complete, there is no fundamental reason for the market to continue buying GBP.

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Overall Outlook

The wave structure for GBP/USD indicates that the downtrend remains intact, with the first wave already completed. The next step is to wait for a convincing set of corrective waves, which will help identify new selling opportunities. The minimum correction targets have already been reached at 1.26, with a more optimistic target near 1.28. At current levels, GBP/USD can already be considered for short positions, as wave C is approaching its end. However, it would be preferable to wait for confirmation signals, which may vary among traders.

On a higher time frame, the wave structure has shifted. The chart now suggests the formation of a downward trend, as the previous three-wave upward movement appears complete. If this assumption is correct, we should expect a corrective wave 2 or B, followed by an impulsive wave 3 or C.

Key Principles of My Analysis:

  1. Wave structures should be simple and clear. Complex patterns are difficult to trade and are often subject to revisions.
  2. If there is uncertainty about market conditions, it is better to stay out.
  3. There is never 100% certainty in price direction. Always use stop-loss orders for risk management.
  4. Wave analysis can be combined with other analytical methods and trading strategies for a well-rounded approach.
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