British pound faces bearish reversal on Elliott Wave and Fibonacci

The British pound (FOREX:GBPUSD) is in a bullish mode and reached our projected zone for this week (1.5800-1.5900), which is actually a very important resistance zone in combination with the wave principle and Fibonacci levels. As you can see on the chart, we are tracking a huge wedge pattern called an ending diagonal, which usually predicts a very strong reversal. With that said, we are keeping an eye on potential sell-off on this pair from current resistance zone. This sell-off can happen soon if we consider that prices are in late stages of wave 5 now, testing 61.8% Fibonacci projection compare to wave 3 and also approaching 161.8 % extension of wave 4.

However, as always, only price can confirm the direction you anticipate. In other words, we need a five-wave decline from the highs to confirm further bearish waves for the pair. Only then trader could be interested in short opportunities; until then stay aside.

GBP/USD 4h Elliott Wave Analysis

What is Diagonal Triangle?

A diagonal is a common 5-wave motive pattern labeled 1-2-3-4-5 that moves with the larger trend. Diagonals move within two contracting channel lines drawn from waves 1 to 3, and from waves 2 to 4. There are two types of diagonals: Leading diagonals and ending diagonals. They have a different internal structure and are seen in different positions within the larger degree pattern. Ending diagonals are much more common than leading diagonals.

Ending  Diagonal

An ending diagonal is a special type of pattern that occurs at times when the preceding move has gone too far too fast, as Elliott put it. A very small percentage of ending diagonals appear in the C wave position of A-B-C formations. In double or triple threes, they appear only as the final "C" wave. In all cases, they are found at the termination points of larger patterns, indicating exhaustion of the larger movement.

  • Structure is 3-3-3-3-3
  • A wedge shape within two converging lines
  • Wave 4 must trade into a territory of a wave 1
  • Appears primarily in the fifth wave position, in the C wave position of A-B- C and in double or triple threes as the final "C" wave

About the Author

Gregor Horvat, based in Slovenia, has been in the forex markets since 2003. He is a technical analyst and individual trader who has worked for Capital Forex Group and TheLFB.com. He also is founder of forex services on www.ew-forecast.com. EW-Forecast.com provides technical analysis of the financial markets, highlighting behavioral patterns based on the Elliott Wave Principle (EWP). Website: http://www.ew-forecast.com/

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