GBPUSD formed a bottom at 1.4950 on January 23rd. Some 20 days later, the pair climbed above 1.54. Should we expect the recovery to continue or the return of the bears is just a matter of time? In the search for the answer, we will examine an hourly chart of GBPUSD, in order to see if we could recognize an Elliott Wave pattern.
GBPUSD has been declining since the middle of July, when it topped close to 1.72. Therefore, it seems safe to say it is currently in a downtrend. But trends rarely develop in a straight line. Instead, they are usually interrupted by corrections in the opposite direction. According to the Elliott Wave Principle, all corrections, except for triangles, consist of three waves. The above-shown chart suggests that the recent 470-pip recovery in GBPUSD could be part of one such three-wave retracement. In fact, it looks like an ending diagonal wave C of an A-B-C expanding flat correction, which started on January 8th. Corrections are supposed to be fully retraced, when the larger trend resumes. So, if this is the correct count, the exchange rate should head south again, erasing all of GBPUSD’s gains. This scenario would be confirmed, if prices break the lower line of the diagonal. From then on, targets lie below 1.4950.
