The GBPUSD is on the verge of a bullish breakout that could test 2.07. Risk is tight.
The decline from 2.1160 to 1.9337 is in 5 waves and indicates that the larger trend is down. That drop is either wave 1 or A within a bear cycle. The rally from 1.9337 is either wave 2 or B but it is our contention that the rally is not over. Wave C (from 1.9361) has exceeded the wave A high of 1.9957 but the weight of evidence argues for the rally to continue.
This is a close up view of the rally from 1.9361 (wave C within the A-B-C rally from 1.9337). Wave i of C is 3446 pips and wave iii of C is 355 pips. Since waves i and iii are roughly equal, neither one can be considered extended. In an impulse, one of waves i, iii, or v will be extended. Typically, a 5th wave extension travels 161.8% of the wave i to iii price distance. This would place the GBPUSD at 2.0796, very close to the 78.6% of 2.1160-1.9937 at 2.0770. Potential reversal areas prior to the 2.0770/2.0800 zone are 2.0187/2.0248 and 2.0420/2.0463. The GBPUSD is on the verge of breaking out from a 4th wave triangle. Risk is tight at just below 1.9761.
Yet another reason to favor a major rally is COT positioning. The COT indexes have turned higher from 0 (bearish sentiment extremes). A simple look at the chart and indicators below the chart show that turns from 0 precede major bullish moves. For more on COT and how we interpret the information, visit the Weekly COT Report.
