Sell EUR/GBP at 0.8810
Stop at 0.8860
Target 0.8580
Risk:Reward 1:4.6
Analysis Follows
Today I have spend a considerable amount of time analyzing the EUR/GBP pair. While some of the finer details of the recent consolidation elude me, longer time frame charts seem to be paint a clearer picture. Below is a weekly chart of the pair, showing what I suspect to be an impulse move to the upside carving out it's final wave.
As you can see the second wave was very shallow and took quite some time, while the fourth wave was sharp and deep, following the guidelines for alternation. While it is possible that wave 4 is not yet complete, the following charts are based on the assumption that 0.84 will not be broken during the next 6 months at a minimum.
The two charts below are daily charts from the end of the above wave 3 onwards. As you can see the move so far has been quite complex. Below is my favoured count, which shows red wave 2 of 5 nearing completion, before a sharp move up in a wave 3. You can see that all the moves up seem much sharper than the moves sideways/down, which can often be a good indicator of trend direction. Click images to zoom.
My next chart is also a daily chart, offering an alternate scenario to the above count. Here I have drawn in the possibility of a triangle forming which will cause the pair to consolidate for much longer with minimal price movement.
Either way I think there are some good opportunities presenting themselves in this pair coming up in the very near future. Below is an hourly chart of the consolidation that has unfolded over the past month. As you can see this correction is also extremely complex. I have spend a long time trying to work out a count for it, however the part in the black box that I have marked out doesn't seem to fit within the rules of EW.
Ignoring the part I could not define, I have attempted to work backwards to try and explain what is happening. The moves after the peak at 0.8842 seem to count in a 3-3-5 pattern, which is possibly an unorthodox B wave and I have labelled the chart based on this conjecture. Whether or not this count is correct, a correction will always finish in a motive C wave in the opposite direction to the prevailing trend, and I think this may be it.
A clear impulse from the 0.8665 can clearly be seen, which I expect to complete aroung the 0.8820 Fibonacci confluence zone. The orange Fib levels are from wave 1 of C, and the blue Fib levels are from the the move I have labelled as A?. Wave A being equal to wave C and wave 1 being equal to wave 5 are both very common Fibonacci relationships.
I will be looking to short EUR/GBP from 0.8810 with my stop loss at 0.8860. If price moves above 0.8856 then my above counts are all invalid and I will have to reassess my charts. I expect a move down to around 0.8580 at least. This is just above where wave A from 0.9412 to 0.8834 is equal to wave C from 0.9154, and only just beneath the wave 3 of C extreme at 0.8603. The risk to reward ratio here is 50:230. or 1:4.6.
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