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British Pound ‘s 13-Year Downtrend Almost Over

The thirteen-year period between 2007 and 2020 started with the biggest crisis since the Great Depression and is about to end with the biggest crisis since the Great Depression. Between the two, the longest economic expansion on record took place. And while stock markets around the world reflected that recovery, some currencies have been in a 13-year downtrend. The British Pound is an obvious example.

GBPUSD was hovering above 2.1150 in November 2007. As of this writing in April 2020, it is trading near 1.2315, up from 1.1412 last month. Prior to the late-2007 it seemed as if the pound would never decline. Now, it feels like it will never recover.

However, no trend lasts forever and this is especially true for currency pairs. So instead of extrapolating the past thirteen years into the future, let’s see if a contrarian approach is appropriate. The weekly chart below puts the British pound’s post-2007 decline in Elliott Wave context.

British Pound

GBPUSD’s bear market seems to be approaching its end. It looks like a simple (A)-(B)-(C) zigzag correction. Wave (A) coincided with the 2007-2009 Financial Crisis. It was followed by a corrective recovery in wave (B) up to 1.7192 by July 2014. This means the rest of the decline must be wave (C).

Given that GBPUSD has been drawing three-wave structures since the top of wave (B), it makes sense to expect an ending diagonal in wave (C). Wave 1 of (C) is a simple a-b-c zigzag and so is wave 3. Wave ‘b’ of 3 is interesting as it is an expanding triangle correction.

If this count is correct, we can expect more strength in wave 4 towards ~1.3000. Then, another drop to a new low in wave 5 should complete wave (C) and thus conclude the entire post-2007 bear market. A bullish reversal near 1.1000 can open the door for a new major recovery in the British Pound against the US dollar.

What will EURUSD, USDJPY and USDCAD bring next week? That is the subject of discussion in our next premium analyses due out late Sunday!



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