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30.01.2025 04:06 PM
GBP/USD Analysis – January 30th
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The wave structure of GBP/USD remains somewhat ambiguous but generally clear. Currently, there is a high probability of a long-term downtrend formation. The main question concerns the presumed wave 2 within 1, which appears unconvincing. Conversely, wave 5 looks more definitive, suggesting that the larger wave 1 may be complete. If this assumption is correct, a series of corrective waves is now forming, targeting levels near the 1.28 level.

Since the euro has likely begun forming a corrective structure, it is reasonable to expect the same for the pound. Additionally, it is important to note that the Bank of England is preparing for four rate cuts in 2025, while the Fed does not plan to cut rates by more than 50 basis points. The UK economy continues to disappoint market participants, while the U.S. economy strengthens confidence in the dollar. These factors should discourage mass dollar selling and excessive pound buying.

The GBP/USD pair declined by only 10 basis points by the start of the U.S. session on Thursday, with minimal market activity and low volatility.

Notably, the Federal Reserve's first policy meeting of the year concluded yesterday. While a market reaction was expected, it failed to materialize. Market participants found Powell's statements unremarkable, despite several key insights that should have fueled dollar demand.

Key Takeaways from Powell's Speech:

  1. The U.S. economy is stable and does not require stimulus.
    • This was expected, as GDP reports continue to confirm economic strength.
  2. Inflation remains above target, making rate cuts premature.
    • The Fed sees no urgency in easing monetary policy.
  3. The labor market is stable and does not justify monetary easing.
    • Restrictive policy remains necessary to combat inflation.
  4. Trump's desire for rate cuts does not influence Fed decisions.
    • Powell reaffirmed the Fed's independence, stating that monetary policy decisions are solely within the FOMC's jurisdiction.

Despite these hawkish signals, the market did not react by increasing dollar demand. Instead, GBP/USD continued its corrective wave formation, pushing the pair higher, contradicting the fundamental backdrop. The b wave within 2 appears unconvincing, suggesting that a stronger decline is still possible. However, any downside is likely to be limited, followed by another leg higher, possibly unrelated to economic data.

This image is no longer relevant

Conclusions

The wave structure suggests that the GBP/USD downtrend is still in progress, with wave 1 now complete. The market is expected to form a corrective wave or a set of corrective waves, after which selling opportunities may arise. Initial corrective target at 1.26 level. More extended correction at 1.28 level. Currently, the market may be finalizing the first wave within wave 2

On a higher timeframe, the wave structure has evolved, now indicating a downtrend formation. The previous three-wave bullish cycle appears complete. If this assumption holds, the next phase should be a corrective wave 2 or b, followed by an impulsive wave 3 or c, signaling renewed downside momentum.

Key Principles:

  1. Keep wave structures simple and clear. Overcomplicated patterns are difficult to trade and frequently change.
  2. Avoid uncertainty. If the market outlook is unclear, it's better to stay out.
  3. No absolute certainty in market direction. Stop Loss orders are crucial for risk management.
  4. Combine wave analysis with other strategies. Wave analysis should be used alongside other technical and fundamental approaches.
Chin Zhao,
Analytical expert of InstaForex
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