GBP not yet ready to drop

[Mercury]

It seems most people expect GBP to drop like a stone post Brexit (or due to terrible deficit, whichever you prefer) but if it was so primed why hasn't it done so already?  Some GBP watchers even believe GBP has reached its bottom and will rally from here.  Looking at the technicals I still believe GBP will reach 1985 lows at least but from here I wouldn't go Short unless the post Brexit low is breached signaling a clear strong leg down.  In line with my analysis of DX and EURUSD I see a short rally back to test the long term support line (now resistance) and price gap area to complete an A-B-C retrace before the next leg down begins in earnest.

 



[donaldprice]

Hy Mercury, from what I can make out I believe that, yes we are due for a retrace in the very short term to around 13154 level (which is the yellow outer channel, which will meet the present trend line resistance) before we have a small sell-off, of which then we could be looking at that retrace you mentioned in your analysis. Overall yes, I do believe we will  no doubt revisit those 1985 lows in order to complete the 5th wave down, but that seems a little way off for my interest zone for now.

 

[Mercury]

GBPUSD is a roller coaster and it could break below the recent Fib 76.4% but a rally looks a better set up.  Price found buyers at the Fib 76.4% recently and then broke back up through support an dis now retesting in a EWT 1-2 move.  A bounce here sets up a strong rally back towards the post Brexit Gap resistance zone in a Wave C 1-5 with a strong wave 3 on the bounce off the current support zone.  Previous low turning point is not that far below and represents a good stop loss area.

 



[donaldprice]

Hi Mercury, this currency pair is enough to write a full comprehensive textbook in terms of its complexity for its ABC wave. However, after spending some significant time on this, given that markets have these very irritating fractal waves. Therefore given that A has 5  waves and B has 5,3,5 waves and C 5 again I have come to similar conclusions, however I will revisit this more closely and look for further evidence to support these findings.

[Mercury]

Hi , I agree it can be frustrating, which is why I only track and don't trade such moves (or if I do trade at very specific point I move stops quickly to B/E).  I'm looking for the sun to come out on my analysis for that Ahhhh moment, but so far nothing doing.  I am wondering whether I will have to change the title of this thread to GBP IS ready to drop!  But I'm not ready to do that yet and won't be until price breaks below the post Brexit low at my wave 1 point (see previous posts).  You may like to know that the EWI boys think our wave A is a Wave 2, which obviously it could well be...  For me I would have expected a stronger start to wave 3 though so...

 

So until that break lower happens I remain tracking this market for a retrace.  Obviously my break and retest idea did not work and we find the market back down on the Fib 76%, this time right on it though.  So a rally from here is possible as is a further drop to the 88% (although by then I will be short on hope...).  A wave B can retrace almost back to a double bottom so all still in play until that break of the previous low.

 

Clearly you have to wait for a confirmed rally to trade this Long, especially as it would be a brave (nay perhaps foolish) move to trade against Brexit GBP fallout and BoE easing, when has betting against the central banks been a winning bet since the credit crunch ended (if indeed it ever actually did...?)  A Short on a confirmed break of the Post Brexit wave 1 low is the other obvious trade to track.

 

In the meantime there are other markets where set ups are cleaner.

 



 

 

[donaldprice]

Absolutely true Mercury, the last time traders took the battle to the central banks was the ERM, but then again, if you read your history books that really was a no brainer. In the mean time when you are in doubt best leave it for a while and look at other markets with better trade setups, or in this case a more easily defined wave pattern.

[donaldprice]

Could not help look at this currency pair recently and began to question the analysis again. As they say in Elliot, cant foresee the next wave without looking at the previous. After looking at Goordman's and Kennedy's Elliot wave trading guide for some guidance, it looks that on the 4 hourly chart that from the period between 5th July to 3rd of August we where in a classic zig zag move (5,3,5) move. It also terminated on the 4 hourly tramline, which when putting all together prepares you for a very extreme probable setup. However I am not ruling out a probable pullback, however looking at the EUR.GBP pair I am still presuming that this is got further weakening before we see an expected decent pullback.

I thought I would post as well the daily chart of which I suspect that we now are in the 3rd part of the 5th wave and overall from a monthly perspective it looks like that we riding in general a C wave which therefore would correlate with the analysis of the daily.

[Mercury]

OK , I see all that.  I have attached my monthly, same as before, for comparison.  In the near term the different EWT labeling we have makes no difference but long term it does in terms of how far down GBP might go.

 

I am less concerned about the form of the current move as I am about whether there is a rally or bearish drop signal coming up.  A breach of the post Brexit low is bearish, a resumption of the drop in wave 3 as you suggest.  However there is a Triangle formation on the hourly just now, which, if it completes with a break above the Triangle and resistance zone, could signal a rally on EWT1-2 (what I have been tracking since Brexit frankly.  A long in such a scenario may be a decent bet although going short at the eventual termination of the wave C that this set up would imply is the longer term play.  Still in a waiting game on GBPUSD.  Re EURGBP, I agree this is likely to range up further but that does not preclude a GBPUSD rally if EURUSD also rallies.

 



 

 

[Mercury]

BTW, the COT data from last week shows a weighting to shorts from the Non Commercials that is some way the largest it has been since 2007.  With such a Bearish sentiment there is huge scope for a contrarian rally and stop squeeze.

[donaldprice]

I was debating the last few days, if we where seeing a classic triangle and from early this morning this was confirmed after completing WD.

[Mercury]

I agree   I have an ending Triangle for a Wave B turn.  Assuming this is confirmed then a wave C rally in 1-5 format should approach the price gap from Brexit day and most likely hit the 13600 mark at a minimum.

 

For this to be confirmed a strong break of the higher up resistance zone is needed but before that don't be surprised to see a pullback, possibly to the Triangle top line, which would be about Fib 62%.

 

 

[donaldprice]

Hi Mercury, nice to hear your feedback. I do like spotting these type of patterns, one thing about EWT is that it does make you question what the markets is trying to tell you and in this case it really was a nice setup. We could possibly see a pullback to form W2, which todays unemployment figures could potentially drive that momentum, which is an opportunity to add to the position.

[Mercury]

I notice you are quite heavy on the EWT  and also you have noticed it can give the wrong steer or make you doubt yourself.  I have often found in the past that I have talked myself out of a good set up because I can't make EWT fit.  I prefer to use EWT for longer term cycle identification so that I can judge where the market is over all and then rely more on tramlines, Fibs and reversal patterns for shorter term analysis.  Of course I use those in LT charts too.

 

Reversal patterns are my favoured mechanism, coupled with sentiment indicators (contrarian take).  The hard part is having the patience to wait for it and bravery to get in on a break.

[Mercury]

As mentioned elsewhere and previously my read on this market is that we are in for a contrarian rally to complete an extended A-B-C retrace.  In my experience such a long period of consolidation in retrace rally is not unsurprising after such a sharp drop and with Bearishness at all time highs (COT data and general MSM commentary) BUT with some seeing GBP as having hit the bottom a rally is set up well.  And I think it started on Aug 15 with a short 1-5 run up to Resistance zone and into a wave 2 retrace back down.  Don't know whether this retrace has finished or has another leg down to go but either way a turn back up and break of the recent high will set up another Long bet with 13600 the minimum with 13900 a possibility.  After that I expect a long strong drop down towards parity but that's for another post.

 

 

[donaldprice]

To me this really would be just a pullback roughly to the 50%f level which would smack that T-line of which could be a nice entry opportunity or add to your position. I though It was a good opportunity to cover that short Thursday night, that silly rumour of Theresa May triggering A50 seem to have added to the momentum that Friday midmorning/afternoon. But as far from the ETW, I believe that we still need to complete the CW. I also would like to add that in terms of potential target the 139 area seems logical, although not certain. Although I don't pay much attention to S/R on horizontal lines to much, but it you draw a horrizonal line and place a T-line (pink one which I draw) you notice that it hits that horizontal line where 13875 broke during Brexit. I would also state that it also closely hits the 61%fib level from the start of W3 of W3.

In conclusion, I don't state that this would occur, but I do think it is a plausible argument and enough to warrant further investigation or at least keep a close observation on, as price and time carry themselves out.

[Mercury]

Sounds like we are roughly in agreement   My upper target is 13900ish like your T-line.

 

My strategy here on this one is to hold my anticipatory Long and add to it if I get a turn at my forecast Wave 2 of C turning point and again on a positive break of the upper resistance zone (which ought to be in a wave 3 move so long and strong).  After that is about seeking the best exit and preparing for the retrace turn at the end of Wave C to go Short again for a hard run down.

 

Anyone else got a view on this?

[Mercury]

Is GBPUSD about to rally?  As with GBPAUD I have a number of Long triggers over the past week or so and now a technical break of resistance.  The market is pausing here, perhaps retesting the lower edge of that resistance zone and then could rally strongly.  If it does my first target is 13500 but I expect it to go a bit higher than that before the retrace is complete.

 

Again for full disclosure I am already Long so my bias is Bullish in the short term.

 

 

[Mercury]

GBPUSD breaks resistance and is on its way up in a likely wave 3.  The next resistance is at 13350 and that ought to be short lived if this is a wave 3 (unless it forms a Pennant or Flag of course, which would be a great indicator for the max extent of this potential rally.

 

Is anyone trading this pair?  I'd love to hear what your views are...

 



[donaldprice]

Although one has to exercise some serious caution today, regardless I think we should keep an eye on this pair, as I have updated the T-line and we may be close to finishing what appears to be a Flat, of which may terminate at the 50% fib level. A rejection of this could confirm it. Alternative is that if we do not pass the 38%, then we could have completed the retrace and we could have more of an impulse wave to the upside.

 

 

[donaldprice]

Because of this retracement, one must question approximately where it could terminate and after assessing this pair, it looks that we could retrace to the 50 or 61% level which would complete W2 of W-C. Therefore may be a good entry for a nice W-3 please state if you have a different opinion.

 

[Mercury]

That is how I see it also   Conventional wisdom will be that the USD just started the much talked about rally on Yellen Blah, Blah but I am not yet sure that this is at lift off, though that can't be far away.  At present I believe we will see a final reversal on short term charts delivering a conclusion to the USDJPY large retrace, the GBPUSD and EURUSD small retrace and then the USD bit time frame rally will begin.

[Mercury]

Could be at a Wave 2 turn now with a bounce off the Fib 50%.

 



[donaldprice]

Just noticed that, but more obvious it also bounced of 0.786 of the beginning of W3 of W1. But i spotted this a little too late, therefore wait for some more development.

[Mercury]

GBPUSD is in a mini range just now but a EWT1-2 could be complete at the Fib 50% with Momentum Divergence favouring a break out to the upside.

 



[donaldprice]

Been reviewing this currency pair on the daily and one can only express utter complete horror with the Elliot wave analysis. Since the Brexit vote, we have seen a number of external analysts from some of the major investment banks calling for parity and also I know Mercury has as-well. Although I have always kept the believe that any stock, share, indice can crash to major levels. Looking at the chart it just becomes very difficult to believe what your analysis is saying, but it looks like we have only just after the brexit vote in the middle of W2 of W-3 major bear trend. But that therefore suggests we will have a major dollar rally. I know this has been cited before in the IG community, but I quite often will review my analysis in case I have missed anything.

[Mercury]

Not quite sure what you are saying   Are you saying this market will or will not crash down towards parity and what is the horror?

[Mercury]

GBPUSD forming a mid rally pennant?  Sadly this is happening on NFP day but it doesn't matter if you are Bearish or Bullish, placing a stop in sufficiently above/below the Pennant can be a good option in such cases.  You just have to watch out for whiplash.

 



[donaldprice]

Are we seeing a bearing contracting triangle? I confess that I am no huge expert in triangles, however am I the only one who has noticed that on a daily time frame their is some resemblance of a contracting bearish triangle (3-3-3-3-3 W). What has alarmed me is the most recent rally of today, stopped short at 0.786% fib level, of course has not closed as of tonight, however if you look on the 4 hourly you can also count 3 main waves forming this similar pattern. I think it would be fair to suggest that if we see a sharp deterioration some time soon then this analysis could be confirmed, otherwise the original wave count would still be in play (see previous threads). I will always welcome alternative views.



[Mercury]

It could be a Triangle  but of course the problem is when you are looking for such formations you start to see them everywhere.  Context is the key for me with any chart formation.  For instance a right angled triangle (i.e. one with a horizontal line) usually resolves with a break through the horizontal line but not always because to depends where in the large time frame EWT cycle it is.  For me this is a possible equilateral triangle, which could breakout either way so alas it doesn't really help us that much.

 

My bias is for a retrace rally before further drop in this market and to negate that view I would need to see a break of the post Brexit low.  Therefore I am Long GBPUSD just now.  The set ups on other USD pairs would seem to support this assessment and the recent NFP helps the case short term.

[donaldprice]

Hi Mercury, as you say, it is very easy to see them everywhere sometimes, but this is why I place this as an alternative W count, their for I find its best to place all options on the card to help make good decisions, but so far this morning, as I said in the post, that the original wave count seems in play