According to Elliott Wave theory, triangle patterns precede a terminal wave in the sequence. It appears GBP/USD carved an Elliott Wave triangle from December 2016 to April 2017. That suggests the rally that began on April 9 is a terminal wave in that once this wave completes, a larger correction may settle to possibly retests 1.19.
Both Elliott Wave and IG Client Sentiment suggests there is still some strength left in the move. Sentiment finished last week at -1.78 as the traders net short outnumber those traders net long. Though we may see some strength this week, the rally may be running out of real estate to the upside.
Wave relationships suggest a potential for a pivot near 1.3060. If this figure is surpassed, there is a stronger level of multiple wave relationships resting near 1.3200-1.3235. This doesn’t mean Cable has to turn lower at that point, but the multiple wave relationships suggest an elevated potential for a reaction lower.
This corrective pattern could work its way higher towards 1.34, though we are uncertain of the odds that it will reach that high.
---Written by Jeremy Wagner, CEWA-M
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