EURGBP has been rising for over two months now. The pair’s journey to the north began from 0.8313 in mid-April and did not stop until 0.8879 was reached on June 28th. However, everything comes to an end and the euro’s rally against the pound is unlikely to be an exception. In fact, judging from the 4-hour chart below, EURGBP seems to be on the verge of a dive, which might come as an unpleasant surprise to late bulls.
The 4-hour chart of EURGBP allows us to see the structure of the recovery in question. As visible, it could easily be seen as a complete five-wave impulse. This chart could also serve as a textbook example of the guideline of alternation, which states that the two corrective waves – 2 and 4 – tend to be of different type. Here, wave 2 is a simple a-b-c zig-zag, while wave 4 is a triangle.
According to the Elliott Wave Principle, a correction of three-waves follows every impulse. Therefore, instead of joining the bulls now near 0.8780, traders should get ready for more weakness in this pair. At least as long as it trades below the top of wave 5 at 0.8880, the bottom of wave “a” of 4 looks like a natural first bearish target.