The Elliott Wave Principle is famous for its ability to help traders and investors identify price extremes and predict reversals. Two months ago, on August 2nd, we applied it to the 4-hour chart of EURGBP. In an article, called “EURGBP Trying To Find The Bottom”, it warned us that a bullish reversal might occur soon. You can see how the forecast was looking like on the chart below.
As visible, we thought there is an ending diagonal developing in wave (5), whose wave 5 was still under construction. That is why we said that “EURGBP should make one last bottom near 0.69 and reverse to the upside.” The updated chart shows how things went from then on.
It turned out the bulls were even more impatient than expected. EURGBP fell to 0.6950, which happened to be the level, where the bears finally gave up. Wave 5 of (5) did not make a new low, which allows us to call it a truncation. The pair then started rising. On September 29th, it reached as high as 0.7436. Ralph Nelson Elliott, thank you.
What to expect in EURGBP from now on? As the chart depicts, the rally from 0.6950 to 0.7436 could easily be counted as a five-wave impulse. According to the theory, every impulse is followed by a three-wave correction in the opposite direction. So, we suspect the euro is going to weaken against the sterling in the near term. A pull-back to 0.7200 should not be excluded as a possibility.
