miroslava.micunkova's picture

Has Sterling lost its appeal versus the Dollar or are we close to a BUY? GBPUSD Elliott Wave Analysis

In mid September we published a blog suggesting further weakness of GBPUSD amid a major zigzag* correction. As the intervening wave B had not been clearly completed at the time, our initial estimated target area was 1.5700-1.5800. Please see the blog here.

Wave B was fully completed on 19 September at 1.6523 after a failed attempt to return back above the broken 260-day MA. According to Elliott, “in a zigzag, the wave C is usually equal to that of wave A, although it is not uncommonly 1.618 or .618 times the length of wave A.” As such, we are now able to measure the target for the wave C based on a corrective wave multiples.

After projecting 100% of the 1.7186-1.6059 July-September 2014 decline (wave A) from the 1.6523 key recovery peak (wave B) we get a price target of 1.5396. This also approximately coincides with the 76.4% retracement of the 1.4818-1.7186 July 2013-July 2014 advance. By multiplying the wave A by 1.618 we get a price target of 1.4700 however, we do not rate this target probable at this time as it would contradict the assumption of an underlying uptrend.

Given the analysis above, we can state that the correction is in the late stages and the downside seems limited. The Target area for wave C is seen at 1.5377-1.5396, a break below there would open additional downside towards the May 2010-July 2013 uptrend-line now at 1.5074 (rising by 0.0003 a week).

*zigzag - "a single zigzag in a bull market is a simple three-wave declining pattern labeled A-B-C. The subwave sequence is 5-3-5, and the top of wave B is noticeably lower than the start of wave A."

Prechter R., Frost A. (2005). Elliott Wave Principle. Georgia: New Classics Library