GBPUSD collapsed on Monday as Brexit remains in doubt this week. The following 7 December GBPUSD Elliott wave analysis shares some technical insights.
December 07, 2020 / AtoZ Markets – The Cable is at the mercy of what happens around Brexit. As closer as we get to the December 31 deadline without a resolution, the risks will increase. GBPUSD hit its highest price since April 2018 last week. However, the quick break above 1.35 was not sustained as the price quickly returned below the critical level. The gradual surge and minor collapse has been maintained by Brexit hopes and concerns since September. A deal was expected last week but traders and investors will have to wait till this week. Earlier on Monday, the Irish PM said the deal will more likely happen than not but won’t be surprised if everything collapsed. The tone was dovish and GBP had its biggest collapse since late September. GBPUSD hit 1.3225 – over 200 pips dip. Currently, the price is making a minor recovery to 1.33 from the weekly bottom of 1.3225.
Going forward, the Brexit will remain the major risk factor for Brexit despite positive vaccination news in the UK. On December 9, the country will start vaccination for the elderly and health workers. Traders would watch look for short-term trades from the headlines. The cable will fall further if no deal is reached this week. The two parties are yet to agree on fishing, governance and standards. December 31 remains the official deadline and a Brexit without a deal will be devastating for the Sterling.
On the macroeconomics front, GBPUSD traders will also watch out for the US inflation data coming in the last days of the week. However, Brexit is much more colossus risk concern for the GBP across the FX board.
7 December GBPUSD Elliott wave analysis
GBPUSD completed a bearish ending diagonal pattern just above the 1.35. Last week close below 1.35 suggested further decline. The fact that a deal will not happen on Sunday caused the currency pair to open with a bearish gap just as expected. The 7 December GBPUSD Elliott wave analysis chart below shows a bullish leading diagonal pattern on the weekly chart. Long term forecast can be projected to 1.6 and 1.8. However, a dip toward 1.25 could happen before the next bullish stage. This will happen especially if the Brexit talks extend till the last week of the year.
On the other hand, if a deal happens this week or next, the price should surge back above 1.35 toward 1.4 and 1.5 before the dip to retest 1.35/1.4. As far as the medium-term direction is concerned, this Brexit deal has a lot to contribute and traders should watch out.