The British pound (FOREX:GBPUSD) is very slow and choppy above the 1.5900 level, so we think that move from the latest low is corrective, therefore we think that recovery is temporary. In fact we labeled a decline from 1.6260 with five waves down, which is evidence of a bearish price action, marked as wave (a) or (i). In both cases we expect a third leg lower once corrective wave (b) or (ii) will complete a retracement. Ideally this will occur somewhere between 38.2%-61.8% retracement area compared to previous decline. In that region we also have a parallel trend line connected from 1.6161 swing that could also react as a resistance level. With that said traders should be aware of bearish waves in the next few days. This view remains valid as long as price trades beneath 1.6260 high.
Educational Part: 3 Wave Decline Elliott Wave Pattern
From an Elliott Wave perspective it’s good to know that a five wave move represents a direction of a larger trend or change in trend. In our case it means that GBP/USD is in bearish trend and reason why we are looking for lower GBP/USD, possibly down to 1.5800 in days ahead.
Below is the graphics that shows how the structure of the basic patterns looks like and where we think GBP/USD is at the moment. It’s in five waves as you can see followed by a three wave retracement before a new leg down occurs.
3 Wave Decline