EUR/GBP Has Plenty Of Room To Rise
EWM Interactive | Oct 20, 2016 01:16PM ET
Our last EUR/GBP post was back on August 23, when the pair was trading near 0.8600. There were two charts in that piece, showing two different counts. We thought we would see at least a small pullback before the uptrend resumed. “It definitely does not seem to be the time to add to long positions in EUR/GBP” was the final sentence in that article. Here is what the more optimistic of the two charts was showing almost two months ago.
As you can see, we were expecting the bears to cause a plunge to the 38.2% Fibonacci level in wave 4 of (3). Soon after that forecast, EUR/GBP fell to as low as 0.8333, thus justifying our negative outlook. The decline could have been much greater, but the market chose the above-shown scenario and allowed the bulls to lift the rate to 0.9305, which according to the above chart, should be wave 5 of (3). However, things change and counts need to be revised. The updated EUR/GBP chart below shows why we think the pair still has plenty of room to grow.
Clearly some relabeling was needed because the situation now inspires a different and better idea. The decline to 0.8333, which should have been wave 4 of (3), is now marked as wave (ii) of 3 of (3), so the following rally to 0.9305, in our opinion, is not wave 5 of (3), but wave (iii) of 3 of (3). We believe that because of its size, speed and sharpness. All of which means that the current pullback to 0.8900 is likely to be wave (iv) of 3 of (3). This, in turn, suggests that if this is the correct count, EUR/GBP still has a series of fourth and fifth waves left to make before a major correction takes place. This chart also provides us with a specific invalidation level at 0.8724 because within an impulsive pattern, the first and the fourth wave cannot overlap in price. In other words, as long as EUR/GBP stays above the top of wave (i) of 3 of (3), the bulls remain in charge.
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