The GBPUSD continues to soar, reaching prices not seen since 1992, when the European Monetary Union existed (...George Soros...). The recent strength in the GBPUSD is impressive - but is there upside potential left in the short term? Elliott wave analysis gives us an idea of what could happen.
Right now, the preferred wave count places GBPUSD in the 5th wave of a 5 wave sequence from the 11/28/2005 low (almost one year ago exactly) that started at 1.7046. The 5th wave itself began on 10/11/2006 at 1.8515. A 5th wave consists of 5 waves and the current 5th wave is in its 3rd wave. Thus, the rally from 1.8515 has two more waves left (besides the end of this 3rd wave) - a corrective 4th wave and a 5th wave rally...but how much higher? Resistance from the weekly R2 pivot is at 1.9619. Statistical studies show that weekly R2 is only exceeded about 18% of the time. This suggests limited near term upside potential. Only a drop below 1.9433 indicates that a 4th wave correction is beginning, in which case support is at the prior 4th wave extreme of 1.9304. A final 5th wave advance could then challenge the point where wave 5 (from 1.8515) equals 61.8% of waves 1 through 3 (1.7046 to 1.9025) - which is at 1.9738. Reinforcing the idea of a measured objective at 1.9738 (or about) is the fact that the 138.2% extension of 1.8515 to 1.9178 from 1.8834 is at 1.9750. Thus 1.9738 to 1.9750 could be the end of a 5 wave sequence from 1.7046.
Summary, Elliott Wave Theory (or at least the way that it is interpreted here) suggests:
-a near term decline from near or just above 1.9600 to around 1.9300 but not below 1.9178.
-an ensuing rally to challenge the 1.9738-1.9750 area. An extended wave would have potential for the 161.8% extension at 1.9907.
A drop below 1.9178 would destroy confidence in a rally to 1.9750.
We'll revisit the EW picture as things play out.
