ECB’s policy decision produced fireworks in EURGBP on Thursday. The pair initially fell to 0.7651, but then rose sharply to 0.7848. Trouble is, this gives us no clue about what to expect from the pair next. Is it a “buy” or a “sell”? Fortunately, the Elliott Wave principle eliminates the “flip a coin” approach, by allowing us to analyse the price action and find patterns, indicating the most probable direction EURGBP is likely to choose.
The theory states that five-wave impulses move in the direction of the trend, while three-wave corrections develop against it. Therefore, once the correction is over, the trend resumes in the direction of the impulsive sequence. The hourly chart above shows how EURGBP has been developing since the top at 0.7928. It looks like the decline to 0.7690 could has a five-wave structure. So, the rest of the chart has to be the corresponding retracement, which seems to be an A-B-C expanding flat correction, where wave B makes a new low. Pay attention to the area where wave C seems to have ended – at the 61.8% Fibonacci level of the previous impulse.
If this is the correct count, EURGBP could be expected to decline below 0.7650, while 0.7850 is not supposed to be bothered any time soon. In conclusion, the powerful leap EURGBP made yesterday was quite impressive, but the Wave principle suggests all of those gains are likely to be erased.
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