The Pound Sterling is extending bearish correction early in the London session on Tuesday. How deep will it go? The following GBPUSD Elliott wave analysis looks at the technical side.
December 17, 2019 | AtoZ Markets – GBP pairs were the most volatile last week. Massive surges followed the Tories’ triumph at the December 2019 UK polls. GBPUSD quickly surged to hit 1.3515. However, it seems the market was overbought as the Cable started dropping afterwards. Eventually, the GBPUSD price dropped to 1.32 before the end of the last week. On Monday, there was a bit of consolidation between 1.33 and 1.34. However, afterwards, the price broke downside below the range. The move has continued below 1.32 on Tuesday. The price might test 1.305-1.31 before deciding which direction it will take next. The trend is still bullish. However, a much deeper bearish correction is a strong possibility.
GBPUSD analysis: a no-deal Brexit dragged the market lower
UK Prime Minister Boris now has the necessary political base to go ahead with Brexit. However, there has always been a major concern – a no-deal Brexit. Boris has always been a fan of leave-at-all-cost, therefore, a no-deal is an option the market has always considered. Before the election, Mr Boris repeatedly refused to answer questions related to a no-deal package which was earlier discussed by the Brexit Minister. A leave-at-all-cost will be bearish for GBP. The current fall can actually be attributed to this effect.
According to a Bloomberg report, Boris Johnson is willing to change the law in order to guarantee that the transition phase is not exceeded. This will include a clause for a no-deal split from the EU if talks fail by the end of 2020. The market is reacting negatively as the loss from 1.3515 extends to 1.318.
GBPUSD Elliott wave analysis
We have been looking at the impulse wave rally from 1.196. We expected the 5th wave to be extended as the 3rd wave was short of the 161.8% extension of the first wave. After hitting the two targets at 1.317 and 1.342, the next to watch out for is 1.382. However, we expected the price to retreat toward 1.32 at least before any further rallies. In the last update, we used the chart below (Charting tools from TradingView).
The price dropped as expected to confirm the end of wave iii. There are now two scenarios to watch out for.
GBPUSD analysis- 1st Scenario
This scenario supports the last update. It indicates that wave (v) will extend to 1.382. However, the current dip – wave iv of (v), should stay above 1.3 if this scenario will hold. A significant break above the wave iv channel should confirm the start of wave v of (v). Therefore buyers might consolidate their positions above 1.3350.
GBPUSD analysis: 2nd Scenario
If we consider wave (iv) to be a triangle pattern then the impulse wave surge to 1.3515 might have completed the bullish impulse wave from 1.196. If this is the case, a 3-wave bearish correction to 1.28 or below should follow. However, we will have to see the completion of wave (a) to 1.3 to be certain of this scenario.
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