GBP/USD Elliott Wave: Kicking Off Largest Decline Since January

GBP/USD Elliott Wave Analysis

The GBP/USD rally has stalled at the 1.3631 high last week. It appears the finishing touches may be in place to complete an impulse pattern from the January 13 low.

The rally from January 13 spanned 5 months and 1500+ pips. The Elliott wave pattern we are following is that this rally was wave ((i)) of a larger wave 3. This suggests more upside is available.

From the daily price chart, we can find a few hints that the impulse pattern is complete (or nearly so).

• Wave (v) of the five wave impulse was a diagonal pattern. Diagonals will either begin a new sequence or end a larger pattern. In this case, the diagonal appears late in the trend that began in January which allows us to conclude it is an ending diagonal.
• Wave (v) is nearly equal in size to wave (i) at 1.3600. Wave (v) topped at 1.3631, right inside this zone. This is a common wave relationship where wave (iii) is extended.
• There is RSI divergence between wave (v) and wave (iii). This is common within a completed impulse pattern.

As a result, there are reasons to forecast a medium-term top in price leading to a bearish trend for the next couple of months. This next decline is best labeled as wave ((ii)) and likely falls to 1.2700 – 1.3140.

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 1.27-1.3140.

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: 1.3632

Bearish Target Zone: 1.2700 – 1.3140