GBP/USD ? What on Earth is Going On?! ??

5 min read
HubertM

HubertM

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Dear Traders,

The Cable has been on a very mysterious path since Jan 25 high. Are we yet to see another high or has a reversal set in already… and, if so, how is this reversal exactly unfolding?

Today’s analysis will discuss several Elliott Wave scenarios that could be playing out for the GBP/USD.

Scenario #1: Top is in Place

The chart above shows that a top might be in place ever since the Jan 25 high. In this case the subsequent price-action breaks down into the following:

  • Minuette Wave (i) (purple) of the new down trend is a leading diagonal.
  • Minuette Wave (ii) (purple) would be still in the process completing itself, possibly as a large expanded flat, which would mean some more upside before bearish minuette wave (iii) would kick into action and deal a killing blow to the Pound.

Scenario # 2: Top is in Place, but with a Bigger Leading Diagonal

The second chart above shows a very similar situation as in Secnario #1, but with some differences:

  • The leading diagonal of minuette wave (i) is larger and has a different subwave structure. Although leading diagonals are generally considered to have a 5-3-5-3-5 sub-structure, various sources report the possibility of different permutations, such as 5-3-3-3-3 or 3-3-3-3-3, the latter of which would apply in scenario #2.
  • Minuette wave (ii) would in this case have started at the last low of Mar 1. Scenario #2 means that we could see more complexity play out during the current upwards move (ii) when compared to Scenario #1, which implies mainly one final impulse up before wave (ii) is done and dusted.

Scenario #3: Final High is Yet to be Reached

In the 3rd and final scenario above, I leave the possibility open for another high to be created before the long-term Cable correction is finally complete:

  • All price action since the Jan 25 high would be part of a very long and complex wave 4, consisting of a zigzag (W), expanded flat (X), and a zigzag (single or double) (Y).
  • It would mean that final Wave 5 would have started at the March 1 low, and that a new high will be achieved during this swing. Or at least the Jan 25 high would be matched in the case of a truncated wave 5

What are the Odds?

It is a very difficult situation and there are pros and cons for each scenario:

Scenario #1 fulfills wave rules very well and it is not uncommon to see such price convolution in the early stages of large-scale trend changes. However price was at peak momentum when it reached the Jan 25 high, which most often means wave 3 is completed, with wave 4 and 5 still to form. This has left the door open for another high (i.e. scenario #3). But the weakness with scenario #3 is that the alleged wave 4 is becoming ever more disproportionately large compared to the other waves of the swing which puts serious doubt into this idea. In addition, price-action during potential wave 4 broke even the 61.8% Fibonacci level (of a what would count as wave 3), which is also highly unusual. Scenario #2 has pretty much the same pros and cons as #Scenario 1 but its weakness is the sub-wave structure which is unusual and should generally be more like in scenario #1… 5-3-5-3-5.

Conclusion

I personally am leaning more towards scenario #1 because of the various weaknesses of scenario #3, but it is unfortunately still very hard to tell. In any case, the GBP should appreciate some more in the short-term, regardless of which wave count is correct… the big question mark is simply how high it can go. 1.4150 is a very critical level to watch out for.

All the best along your trading journey…

Hubert

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Ali Efrati
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Ali Efrati

Hi, Thanks for your insightful post, you’ve said “However price was at peak momentum when it reached the Jan 25 high, which most often means wave 3 is completed” Would you please inform me what is your favorite momentum gauge? Are you using an indicator or just interpreting price action?