Our last post about EURGBP was published on August 23rd, while the pair was trading near 0.8600. There were two charts included in that material, showing two different counts, but in any case, we thought we should see at least a small pullback, before the uptrend resumes. “It definitely does not seem to be the time to add to long positions in EURGBP” was the final sentence in that article. Here is what the more optimistic of the two charts was showing almost two months ago.
As visible, we were expecting the bears to cause a plunge to the 38.2% Fibonacci level in wave 4 of (3). Soon after that forecast, EURGBP fell to as low as 0.8333, thus justifying our negative outlook. The decline could have been much greater, but the market chose the above-shown scenario and allowed the bulls to lift the rate to 0.9305, which, according to the chart above, should be wave 5 of (3). However, things change and counts need updates. The updated chart of EURGBP, given below, explains why we think the pair still has plenty of room to grow.
As visible, some relabeling was needed, because the situation now inspires a different and better idea. The decline to 0.8333, which should have been wave 4 of (3), is now marked as wave (ii) of 3 of (3), so the following rally to 0.9305, in our opinion, is not wave 5 of (3), but wave (iii) of 3 of (3). We think so because of its size, speed and sharpness. All this means the current pullback to 0.8900 is likely to be wave (iv) of 3 of (3). This, in turn, suggests that if this is the correct count, EURGBP still has a series of fourth and fifth waves left to make, before a major correction takes place.
This chart also provides us a with specific invalidation level at 0.8724, because within an impulsive pattern, the first and the fourth wave cannot overlap in price. In other words, as long as EURGBP stays above the top of wave (i) of 3 of (3), the bulls remain in charge.
