Dear Traders,

The EUR/GBP has been yoyo-ing over recent trading days and shows signs that it will be range bound for a bit longer yet. Today’s post will analyse its short term wave structure and highlight potential trade setups.

Complex ZIGZAG Before Bullish Continuation

The EUR/GBP extended its sloping sideways correction over recent trading days. The correction follows a bullish leading diagonal that was created between Apr 17 and May 4. Taken together, this suggest an overall bullish continuation pattern. But the corrective range is most likely not complete upon close inspection.

Price created a text book ABC zigzag into the May 17 low. Price Action since then fits best as an expanding flat within wave X because it shows a distinct  3-3-5 signature, which most likely got completed during the last couple of trading hours. This scenario means that another sharp bearish zigzag is probably on the cards before the correction is fully done, which is shown via the white price projection lines. Although the pending Y-part of the correction could also morph into triangle or flat (3-3-5), i favor the double zigzag option because of the gently downward sloping channel (blue).

Furthermore, the chart above provides an alternative price projection (black line), which has much lower odds in my view however. It would mean that a somewhat skewed double zigzag already finished at the May 29 low. The swing proportions and price-action go against this scenario, but I left it on the chart due to the fact that the latest upswing was a full impulse.

Trade Setups

All in all, this situation could provide high reward-to-risk ratio trade opportunities for range traders. Moving averages lose significance during ranging price action. Therefore trading with a combination of trend lines, horizontal r/s levels, and wave analysis is recommended.

In this regard a sell opportunity exists right now, since the wave pattern with the best odds has just culminated and opens the way for a drop back to the bottom of the range channel, while stops can be placed somewhat above the latest high of today. Alternatively, waiting for the first lower high to establish itself within the channel, before going short, could be another good trading approach.

The main target lies around 0.87 and slightly lower, following the lower channel line. Potential buy opportunities will exist if and when price reaches these levels again.

All the best along your trading journey.

Hubert

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