Pound Sterling drops toward an important support level to continue a bearish year. The following GBPUSD Elliott wave analysis looks at what could happen next from a technical perspective.
January 14, 2020 | AtoZ Markets – The Cable is grinding lower and is on course to hit the 1.29 critical support level. The currency pair has shed 2% so far in 2020 and dropped over 250 pips in the process. This is partly due to the talk of hard trade negotiations with the EU after Brexit and a recovering USD price. PM Boris will hope he strikes a trade deal with Brussels after the 11-month transition period ends on December 31. However, it sounds very difficult and almost impossible that the UK will maintain the same relationship with the EU. Therefore, the outcome of the trade deal is uncertain. The price is reacting ‘bearishly’ as a result. After breaking below the 1.305 intraday support level, the next will be 1.29. The ultimate bearish target remains at 1.27 or below.
After a minor recovery to 1.31 on Friday, GBPUSD price continued downside following a dovish statement from the Irish deputy PM Simon Coveney. He warned that the EU ‘will not be rushed’ on a trade deal with the UK after the exit. The current bearish correction does not appear to have ended as the charts below show. The market will now focus on the US CPI and core CPI data coming later today.
GBPUSD Elliott wave analysis
After completing a bullish impulse wave at 1.3515, GBPUSD price is making a 3-wave bearish correction. This is the basic Elliott wave rule. The 3-wave bearish correction is completing a simple zigzag pattern. Wave (a) ended at 1.29 in December. Wave (b) ended at 1.3286 on December 31. Wave (c) has commenced. In the last update, we used the chart below to illustrate how wave (c) could go. (Charting tools from TradingView).
GBPUSD is working out as expected. Wave iii 0f (c) has breached below 1.3505 and should hit or breach 1.29. The new chart below shows wave (c) could hit below 1.27 before the bullish trend resumes.
Once wave (c) breaks below 1.29, we should see the price drop further to 1.275, 1.27 and even 1.267. In the end, we will expect the bullish reversal patterns to signal the continuation of the larger bullish trend.