The Cable fell under pressure following a low market mood on Monday. The following 4 January GBPUSD Elliott wave analysis shares some technical insights.
January 04, 2020 / AtoZ Markets – The safe-haven dollar fought back during the New York session on Monday after losing more ground in the London session. Early in the London session, the dollar index (DXY) fell below 90 and hit its lowest since mid-April 2018. The price was just short of the 88-89.25 support zone before it got a lift to 89.85 later in the day. The fears of a resurgence of Covid-19 seems to outweigh vaccine hopes. The market mood is now on the downside. GBPUSD, highly influenced by the Dollar and Covid pessimism in the UK, fell by over 100 pips since the market opened on Monday, although it first made a failed attempt to hit above the 1.37 psychological level.
The overwhelming risk sentiment on Monday was based on the second wave of the virus. Some countries are recording rising cases while the distribution of vaccines is slow compared to the speed of the spread. The market fears that, unless the rate of vaccine distribution matches up with the spread rate within a reasonable time frame, it will only take a little time from now before health centers are overwhelmed. However, this will most likely be a temporary set-back as vaccine producers speed up production and distribution. Therefore, the dollar could maintain the current rally up to the mid-week. Meanwhile, the FOMC on Wednesday and the US employment report on Friday might take attention away from these drivers. Aside from important events in the US later in the week, the Bank of England monetary policy is also an important factor to consider for Cable traders.
4 January GBPUSD Elliott wave analysis
As the chart above shows, the current bullish phase started in March. We also discussed the long term view in the last update. It’s safe to say that the dollar weakness from this period largely contributed to this move. Meanwhile, the surge is corrective. This indicates that, at some point, we would get another big dip probably to 1.25 or lower. The question now is whether this corrective phase has ended. As the chart above shows, we can count on an extensive and complex double zigzag structure. Today’s dip followed an ending diagonal pattern that completed wave (W) of a primary wave Y (circled in red). We can watch for the end of wave (X) at 1.33 or 1.31 before further rally to complete the corrective pattern with wave (Y) extending above 1.4 to 1.4265 (roof of the channel).