GBPUSD fell sharply at the start of October, clearly in impulsive fashion down from 1.3656, which suggests that trend is turning bearish. In fact, we see a slow and choppy price action for the last month or so, which are characteristics of a correction, and those normally occur in the middle of an ongoing trend.
That said, a higher degree downtrend is expected to continue. Ideally, as soon as we see price now in wave C of a wave 2 corrective bounce that can stop at current 1.3320-1.34 resistance area. Note that we are tracking a potential Elliott Wave ending diagonal pattern within wave C, which can push market strongly into the opposite direction once finished. A five-wave fall and a break below the former swing four would confirm a bearish continuation.
What is a diagonal triangle?
A Diagonal is a common five-wave motive pattern labelled 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. In our case we are looking at an Ending diagonal.
An ending diagonal is a special type of pattern that occurs in the C wave position of A-B-C formations. In all cases, they are found at the termination points of larger patterns, indicating exhaustion of the larger movement. Their formation is a 3-3-3-3-3.