The GBP/USD pair is currently showing bearish momentum, trading around 1.3700 after reaching a multi-year high of 1.3788. This follows some small gains on Tuesday as the US Dollar Index tries to recover from a long losing streak. In July, the momentum for GBP/USD slowed after five months of gains, peaking at 1.3787 on Monday. The rise has been supported by a weak dollar and the Bank of England’s cautious approach regarding interest rate cuts.

Wave Analysis

Recent analysis indicates that GBP/USD is in the early stage of wave ((iii)) of 3 of (3) in a significant impulse cycle. The internal wave structure shows a channel pattern, with subwaves i and ii of ((iii)) forming. The rise above the high of minor wave i suggests that wave ((iii)) is moving forward. Investing involves risks and the possibility of significant loss, including emotional stress. It’s essential to do thorough research before making any investment choices, as opinions presented do not reflect those of the organization cited. The views in this article might not represent its official policy or position. Currently, it seems the upward trend of the GBP/USD pair has paused. The strong rise that started earlier this year and lasted several months appears to be losing steam. After hitting a high of 1.3787, selling pressure is emerging. Now, the 1.3700 level is crucial to watch technically and psychologically. The US dollar’s tentative recovery, seen in the broader US Dollar Index, is impacting the performance of sterling. There’s a feeling that the trend of dollar weakness may be shifting—though not decisively. A stronger US dollar directly pressures this pair, making it harder for sterling to rise.

Monetary Policy Impact

Expectations regarding monetary policy remain a key factor. The Bank of England has not shown urgency about rate cuts, providing some support. However, this caution isn’t enough to counter a strong recovery in the dollar. Close attention is being paid to Powell and his team for any changes in tone—warnings about inflation, labor markets, or growth could strengthen the dollar. A stronger dollar can increase volatility in derivatives linked to sterling. From a wave perspective, the movement still favors a bullish outlook in the larger timeframe. This analysis places the pair within a rising impulse structure—specifically, in wave ((iii)) of 3 of (3). Here, subwave i has finished; subwave ii formed a corrective leg; and a new upward wave seems to be forming. However, the rise from the subwave i high must continue to maintain the bullish cycle. If the current move stalls, it may indicate that the correction is either incomplete or that the pattern could be invalidated. In the short term, those trading derivatives should watch key reaction zones, especially between 1.3650 and 1.3730. A confirmed break below this range could suggest the advance is weakening more than initially thought. On the other hand, if the price stays above this area and forms a higher low, it may open the door for renewed optimism towards 1.3850 and beyond. We anticipate periods of volatility as various factors—dollar positioning, BOE expectations, and technical setups—compete against each other. It’s crucial to manage risk carefully. For those trading leveraged positions, seeking confirmation of bias without considering pullback levels might lead to significant losses. Wave analysis looks to the future but relies on a clear structure to remain effective. If the identified impulsive move stalls within the next 100 pips, the likelihood of a more complex correction increases significantly. In that case, it will be wise to mark zone boundaries and avoid acting on minor breakouts until more confirmation is received. Be vigilant for potential catalysts—macro insights from the US labor report, speeches by Bailey’s team, and any changes in forward rate expectations. These scheduled reports often disrupt short-term patterns and introduce unexpected volatility. While sterling’s medium-term outlook may still be upward for now, short-term traders should consider tighter targets, more careful stop placements, and assess whether the pattern continues to behave impulsively. Create your live VT Markets account and start trading now.

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