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GBPUSD, not as optimistic as it seems

GBPUSD has been in a strong uptrend for quite a long time. The pair managed to climb up from 1.4812 to nearly 1.70 without making a major correction. Some people even say the strength of the Great Britain Pound may soon start hurting Britain’s economy, since it makes British goods and services relatively expensive. But the science of Socionomics had shown us many times, that fear and greed are emotions accompanying the points of reversal. With fearful economists and greedy bullish speculators, we now have plenty of reasons to look at the situation from a different angle, in order to form an independent opinion. And if you are among our regular readers, you probably know that we prefer using price charts as information source.

It is always better to know where you are on the bigger picture, so we are going to start with the weekly chart of GBPUSD. On the chart below you can see the hard hit, which the pair took during the 2007-2009 crisis, crashing down from 2.1161 in November 2007 to 1.3502 in January 2009.

1 gbpusd big pic proverkata

As the chart shows, this huge decline is in three waves, which according to the Elliott Wave Principle means a complete corrective pattern. GBPUSD never reached the lows around 1.3500 again. Five years later it is looking stronger between 1.68 and 1.70.

Recommended reading: Elliott Wave Patterns

But if we want to determine the nature of this recovery, we will need to go deeper into the wave structure. On the next chart we will examine the price action in the white rectangle to see if it is impulsive or corrective.

2 gbpusd proverka

Only three waves a-b-c to the upside suggest a correction. Since this is only the first part of the whole 5-year period, we are labeling this rally (W). Now let’s go back to the larger time-frame and see how the situation has changed with this new labeling.

3 gbpusd big pic kraina proverka

Wave (W) to the upside means that the normal further development includes waves (X) down and (Y) up. It seems that GBPUSD has fulfilled these conditions so far. According to this count, the last big rally should be wave “y” of (Y). Its sub-structure is given on the following chart.

4 gbpusd daily kraen

As we take a look at the price swings, we see that the latest moves are forming something quite similar to an ending diagonal. If this is the correct count, GBPUSD has to make one more wave higher to probably 1.7050, obeying the requirement of wave (Y) reaching above wave (W).

Recommended reading: Ending Diagonal? What is this?

And since we are talking about an ending diagonal, if this really happens, we will be preparing for a reversal to the downside. On the weekly chart, this whole analysis looks like this:

5 gbpusd big pic

GBPUSD and EURUSD often coincide. Our view of EURUSD is extremely bearish.

Recommended reading: EURUSD may fall even sooner

Because of this we consider that being bearish on GBPUSD is not a bad idea, especially when our count is supporting it as well. If this is the correct count, 2014 may be a very bad year for the British Pound.

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