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26.05.2025 04:49 PM
GBP/USD Analysis on May 26, 2025
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The wave structure for GBP/USD continues to indicate the development of a bullish impulse wave pattern. The wave picture closely resembles that of EUR/USD. Until February 28, we observed the formation of a convincing corrective structure that raised no doubts. However, demand for the U.S. dollar then began to decline rapidly. This ended in a trend reversal to the upside. Wave 2 of this trend took a single-wave form. Within the presumed wave 3, waves 1 and 2 have already formed. Therefore, a further rise in the pound as part of wave 3 of 3 is expected—which is what we are currently seeing.

It's important to remember that much in the currency market today depends on Donald Trump's policies. Positive news may come from the U.S., but the market constantly factors in the overall uncertainty in the economy, Trump's contradictory decisions, and the White House's hostile and protectionist stance. As a result, the dollar has to work hard to convert even positive developments into actual demand on the market.

The GBP/USD rate rose by 30 basis points on Monday. As mentioned earlier, Trump reversed his decision to raise import tariffs on the European Union, giving it time to take a more active position in negotiations. At the same time, Jerome Powell reassured markets on Sunday that the Fed's stance remains unchanged. Both developments could be interpreted in different ways. The current situation is such that no event or piece of news can be interpreted unambiguously. Every report can be spun in either direction—and the market does just that at every opportunity.

For instance, Jerome Powell once again spoke about the high risk of rising inflation and the relatively healthy state of the economy, labor market, and unemployment rate, which doesn't call for aggressive dovish action in the near term. He also noted that the Fed needs more time to assess the impact of Trump's tariffs on the economy. Essentially, Powell said the Fed will continue to wait, but the market flipped this message and interpreted it as a sign that Powell is preparing for easing. Around half of the FOMC members have recently expressed support for one or, at most, two rounds of easing in 2025—far fewer than the market expected at the beginning of the year. So even if the Fed does cut rates soon, that alone shouldn't be a reason to sell the dollar again.

As for Donald Trump, European Commission President Ursula von der Leyen did ask him to make a concession, but that doesn't change the essence of the matter. How should one view a president whose opinion changes every few days—or even every few hours? Market participants always try to build strategies, but what kind of strategy can be built now, when Trump keeps making and then canceling decisions? Most likely, the constant shift in rhetoric is part of Trump's strategy itself, but that doesn't make things easier for the market. As a precaution, the dollar depreciates every day. Few are willing to buy the dollar today only for Trump to change his mind tomorrow.

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General Conclusions

The wave pattern for GBP/USD has evolved. We are now dealing with a bullish, impulsive section of the trend. Unfortunately, as long as Trump is in charge, markets may face a slew of shocks and reversals that don't align with wave patterns or any form of technical analysis. But for now, everything is unfolding according to the updated wave scenario. The formation of the upward wave 3 continues, with immediate targets at 1.3541 and 1.3714. Therefore, I continue to consider buying, as the market has yet to show any intention of reversing the trend again.

On a larger wave scale, the wave structure has also transformed. We can now assume the formation of a bullish section of the trend, which currently does not appear complete. For now, only further upward movement should be expected.

My Core Analytical Principles:

  1. Wave structures should be simple and clear. Complex structures are difficult to trade and are prone to change.
  2. If there is no confidence in the market situation, it's better not to enter it.
  3. One can never have 100% certainty in the direction of movement. Don't forget protective Stop Loss orders.
  4. Wave analysis can be combined with other types of analysis and trading strategies.
Chin Zhao,
Analytical expert of InstaForex
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