EUR/GBP: Time To Turn Bearish?
EWM Interactive | Aug 23, 2016 04:47AM ET
EUR/GBP has been in a strong and steady uptrend since November 2015, when it finally managed to leave the area between 0.6930 and 0.7100. The consecutive bottoms were needed for the bears to realize the impulse . This is a clear indication that the larger trend is pointing north. However, the Wave principle states that every impulse is followed by a three-wave correction in the opposite direction. Having that in mind, we should expect a significant decline in EURGBP, because, if this is the correct count, the rate is likely to fall all the way back to the support of wave (4) of the impulsive sequence. In other words, this scenario suggests we should prepare for a sell-off to around 0.7600. That is the grim outlook. Luckily, there is a more optimistic alternative. See it on the next chart.
The impulse pattern might still be under construction. If so, it seems to be approaching the end of wave 3 of (3), which is much better news for the bulls than the previous count. If the market chooses this scenario, we should still expect a pullback, but it going to be much smaller, because instead of a large wave II/B, EUR/GBP is going to decline only to the 38.2% Fibonacci level in wave 4 of (3). According to this less bearish count, 0.8300 is the target the bears would be aiming at. Once they reach it, wave 5 of (3) should take Euro to new multi-year highs again the Pound Sterling.
Both counts suggest EUR/GBP is likely to start declining soon. The only difference is in the depth of the upcoming correction. In addition, the relative strength index shows a bearish divergence between the last two swing tops. It definitely does not seem to be the time to add to long positions in EUR/GBP.
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