The Brexit saga continues as Boris Johnson’s re-election puts Britain firmly on the path of leaving the EU on January 31st 2020. And while the results of the June 2016 referendum caused a crash to 1.1650 by October 2016, GBPUSD is trading near 1.3100 today.
The chart below reveals the structure of the recent recovery from 1.1959 to 1.3515. The pair has formed a pattern that gives us a hint of the market’s future intentions.
The pattern in question is a five-wave impulse, labeled 1-2-3-4-5. The five sub-waves of the fifth wave are also visible. The Elliott Wave theory states that a three-wave correction follows every impulse. Then it is not a surprise that the bulls couldn’t keep their momentum above 1.3500.
If this count is correct, a retracement is already in progress. It has the potential to drag GBPUSD down to the support area of wave 4 near 1.2750 in the weeks ahead. On the bright side, once the anticipated correction fully forms, the 5-3 wave cycle would be complete. The trend should then be expected to resume in the direction of the impulse pattern.
Even if the bears breach the aforementioned 1.2750, this is the count to rely on as long as GBPUSD trades above 1.1959. Levels above 1.3500 would be there for the taking once the corrective phase ends and the bulls return.
Similar Elliott Wave setups occur in the stock, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!