FX.co ★ GBP/USD Analysis – March 4th

The wave structure of the GBP/USD instrument remains somewhat ambiguous but still comprehensible. At present, there is a high probability of forming a long-term bearish trend segment. Wave 5 has taken a convincing form, which leads me to consider the larger Wave 1 complete. If this assumption is correct, then the pair is currently forming Wave 2, with targets near the 1.26 and 1.28 levels. The first two subwaves within Wave 2 appear to be completed, while the third one could end at any moment.

Demand for the pound continues to grow, largely due to political developments in the U.S., making Trump an unintended ally of sterling. However, in a longer-term perspective, the pound still lacks fundamental drivers for sustained growth. The Bank of England plans four rate cuts in 2025, whereas the Federal Reserve does not expect to cut more than 50 basis points. Additionally, the UK economy consistently disappoints markets, while the resilience of the U.S. economy bolsters confidence in the dollar. These factors should deter traders from forming a prolonged bullish trend in GBP/USD.

The GBP/USD pair surged by 120 basis points on Monday and another 50 on Tuesday. As I mentioned yesterday, this all began last Friday following the scandal at the White House meeting between Trump and Zelensky. However, the market had already closed for the weekend, preventing traders from pricing in the event immediately. On Monday, the market fully reacted to the news, leading to a strong bullish move.

The pound's rally is not driven by optimism about the UK economy. In fact, the pound—much like the euro—is merely a spectator in the current market environment. The demand for GBP and EUR is not increasing—rather, the demand for the U.S. dollar is falling at a rapid pace. Consequently, all major currency movements stem from U.S. developments.

The U.S. headlines have been highly impactful:

• Trump blocked all military and economic aid to Ukraine.
• He urged Zelensky to change his stance on relations with the U.S. and the ongoing conflict with Russia.
• The White House imposed tariffs on imports from Mexico and Canada (as promised a month ago) and doubled tariffs on China.
• Both Canada and China responded with retaliatory tariffs, with Mexico expected to follow suit soon.

As a result, three trade wars are now in full swing. A fourth and fifth conflict against the EU and the UK could be next. If this happens, how will the pound and the euro respond, considering that tariffs pose a greater economic threat to these regions than to the U.S.?

For now, price movements remain aligned with the wave structure. The unsuccessful breakout attempt at 1.2765, corresponding to 50.0% Fibonacci retracement, could signal the completion of Wave 2.

Overall Conclusions

The wave structure of GBP/USD suggests that the bearish trend remains in place, with the first wave of the decline now complete. The current corrective phase (Wave 2) has reached initial targets around 1.26, and further gains toward 1.28 are possible. However, the broader wave analysis still indicates that a long-term bearish trend is developing, which originated last fall.

On the larger wave scale, the pattern has shifted. We can now assume a downward trend structure, as the previous three-wave bullish cycle appears complete. If this assumption holds, then we should expect a corrective Wave 2 or b, followed by an impulsive Wave 3 or c.

Core Principles of My Analysis

1. Wave structures should be simple and clear. Complex formations are difficult to trade and often subject to revisions.
2. If the market outlook is unclear, it is best to stay out.
3. No forecast is ever 100% certain. Always use protective Stop-Loss orders.
4. Wave analysis can be effectively combined with other analytical methods and trading strategies.