GBP/USD Elliott Wave: Correcting the 5 Month Rally

GBP/USD Elliott Wave Analysis

The decline that began on July 1 appears to be the beginning stages of wave ((ii)). The first wave of the decline, wave (a), finished July 16. The rally to today is a countertrend bounce wave (b). It appears to be completed or nearly complete.

This implies a wave (c) decline may start soon, carrying GBP/USD down to 1.32 and possibly as deep as 1.27.

This decline would fall in line with a broader trend of USD strength impacting both EURUSD and GBPUSD.

Bigger picture, the aggressive weak trend that began January 13 spanned over 5 months and 1500+ pips…it needs a breather. The Elliott wave pattern we are following is that the 5-month rally in Cable was wave ((i)) of a larger wave 3. This suggests more upside to come down the road.

From the daily price chart, I have wave (v) labeled as an Elliott wave ending diagonal pattern. Ending diagonal patterns tend to be swiftly retraced back to their origination. In this case, it would call for a decline back to 1.27.

In the same zone near 1.27 is an 11-year trend line dating back to 2014. That trend line was broken in March and April. Perhaps Cable will give it another test from the topside.

If GBPUSD doesn’t fall to 1.27, some closer targets include 1.32 and 1.29. These targets are created by estimated wave (c) based on the Fibonacci extension of wave (a).

Bottom Line

The rally from January 13 for GBPUSD appears to have found a medium-term top. The next trend would be a countertrend decline in wave ((ii)) of 3.

This decline likely spans a couple of months and prices may decline to 1.27-1.3200.

Once wave ((ii)) is complete, then a booming rally in wave ((iii)) of 3 could be a strong and powerful rally leading up to 1.53 and possibly higher levels. But first, let the countertrend decline consolidate the gains from the past five months.

Key Level for Bearish Correction: 1.3789

Bearish Target Zone: 1.2700 – 1.3200