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Many trading opportunities are momentum plays. Today’s pick is a little different as the technical chart set-ups for GBP/USD and EUR/GBP illustrate differing outcomes for GBP. As a result, we will set up orders for each of these markets essentially hedging our trade for Sterling.

Short GBP/USD

We previously wrote how the 1.34 price level on Cable is an important level of resistance. It is possible that GBP/USD pivots and moves lower in a third wave in Elliott Wave terms.

Idealized GBP/USD Elliott Wave Count

Trading Around GBP, Short GBP/USD and Short EUR/GBP

-Short GBP/USD at market near 1.3281

-Stop Loss near 1.3383

-First Target near 1.2753

-Secondary Target towards 1.2360 and possibly lower levels

Risk to reward ratio on the first target is 1 to 5.

Why is a positive risk to reward ratio of 1 to 5 important, read about it in our Traits of Successful Traders research.

GBP/USD Elliott Wave Count Nov 28 2017

Trading Around GBP, Short GBP/USD and Short EUR/GBP

Short EUR/GBP

EUR/GBP appears to be grinding sideways in a triangle. This triangle is appearing at the (b) wave of an a-b-c bearish zigzag. Therefore, we have an opportunity to short on the completion of the triangle with a positive risk to reward ratio.

Idealized EUR/GBP Elliott Wave Count

Trading Around GBP, Short GBP/USD and Short EUR/GBP

It appears we are nearing the end of the triangle, as the proposed (d) leg is .618 times the length of the (b) leg. In triangles, it is common for alternating waves to have a Fibonacci proportion in length to one another. If this triangle pattern holds, then the .9014 (c) wave high should hold as well.

-Short EUR/GBP at market near .8955

-Stop Loss near 0.9015

-First Target near 0.8620

-Secondary Target 0.8406

Risk to reward ratio on the first target is 1 to 5.

New to FX trading? We created this guide just for you.

EUR/GBP Elliott Wave Count Nov 28 2017

Trading Around GBP, Short GBP/USD and Short EUR/GBP

Conclusion

In closing, by trading GBP in weak against the USD and strong against the EUR, if one trend prevails over the other, the goal is for the gains of the dominant trend to make up for the losses in the weaker trend.

Keep in mind that it is possible to lose on both legs of the trade. Therefore, implement conservative or no levels of leverage.

Get started learning about Elliott Wave. Grab the beginner and advanced Elliott Wave trading guide.

---Written by Jeremy Wagner, CEWA-M

Jeremy is a Certified Elliott Wave analyst with a Master’s designation. Read more of Jeremy’s Elliott Wave reports via his bio page.

Discuss this market with Jeremy in Monday’s US Opening Bell webinar.

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Other Elliott Wave forecasts by Jeremy:

EUR/USD Elliott Wave analysis points to higher level.

Gold price pattern still bearish yet silver prices sport a cleaner pattern. [Webinar recording]

USD/CAD hugs trend line, but for how much longer?