GBP/USD Elliott Wave: Chopping lower in temporary decline

Zorrays Junaid Alchemy Markets

Executive summary

GBP/USD finished the first wave of a larger third wave.
Current decline is viewed as wave (ii) of ((i)) of 3.
The forecast is bullish while holding above 1.3010.

Back on November 13, while trading at 1.3190, we forecasted a major low and large rally for GBP/USD that may extend to 1.48. Cable, so far, has reached a high of 1.3567 and the pattern we are following appears incomplete.

GBP/USD Elliott Wave count

GBP/USD appears to have completed wave 2 at the 1.3010 low on November 5. We know from our Elliott wave studies that this suggests a wave 3 rally. Wave 3 tends to have a similar size or Fibonacci proportions to the wave 1, or 2025 rally.

Using the Fibonacci extension tool, this projects a 100% wave 3 rally at 1.48.

But first, GBP/USD appears to be correcting lower within a smaller degree wave (ii). This wave (ii) decline has met the minimum expectations at the 23.6% Fibonacci retracement level. However, more commonly, wave (ii) tends to retrace between 38.2% and 78.6%. This would yield a lower decline to 1.3125 – 1.3333.

Then, once wave (ii) is in place, GBP/USD would need to break above the price channel resistance near 1.3650.

Bottom line

GBP/USD appears to be correcting lower in a smaller degree wave (ii). We suspect this decline may halt near 1.3125 – 1.3333 and lead to a large wave 3 rally that possibly reaches 1.48.

If the 1.3010 support low is broken, then wave ‘2’ is extending lower.

Author

Zorrays Junaid

Alchemy Markets

Zorrays Junaid has extensive combined experience in the financial markets as a portfolio manager and trading coach. More recently, he is an Analyst with Alchemy Markets, and has contributed to DailyFX and Elliott Wave Forecast in the past.

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