GBPAUD Plunging Like There is No Tomorrow

It has been a little over a month since GBPAUD reached 1.7650 on May 10th. The day before, May 9th, we published “GBPAUD About to Change Direction”, sharing our Elliott Wave-based opinion, that instead of joining the bulls above 1.7600, traders should stay aside and get ready for a major bearish reversal. Here is the chart that motivated the negative outlook.
gbpaud elliott wave chart analysis
There were two reasons for pessimism. First, the 4-hour chart of GBPAUD was showing a clear five-wave impulse to the north. According to the theory, every impulse is followed by a reversal. And second, the relative strength index allowed us to see the typical bearish divergence between waves 3 and 5, which meant the bulls were running out of steam. These two combined, were more than enough to convince us the Pound’s uptrend against the Australian dollar was not as strong as it appeared. A month later, we now know it was not.
gbpaud elliott wave analysis
The pair plunged to as low as 1.6728 earlier today, representing a 922-pip selloff from its May high. The decline consists of only three waves and under normal circumstances, the uptrend should have been expected to resume. However, the big picture outlook shows the impulsive rally to 1.7650 is actually part of a larger correction within an even larger downtrend. That is why instead of “buying the dip”, we believe more weakness should follow, as long as the top of wave 2 at 1.7491 is intact. Unless the pair returns to break this invalidation level, GBPAUD would remain under heavy pressure.

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