The Pound Is Still Poised to See Lower Levels

Focus: STRATEGIES

Michael Golembesky Image Michael Golembesky Analyst, ElliottWaveTrader
Most of the time the pundits are able to find some kind of news event to explain a move, but there are times when they simply are not. This was the case with the October drop in the pound as it hit a spike low that saw the pair down over 1400 pips in the overnight session prior to finally settling down just over 500 pips lower from the October 5 closing price.

Now, while at times an exogenous event can act as a timing catalyst for large market moves, this is more of the exception than the rule. Often times when an exogenous event is assigned to a move by a pundit, and later the public, that move was already well underway prior to the event even occurring.

I mention this because GBP/USD now has a pattern that has the potential to see a sharp reversal to the downside. The Brexit negotiations have already begun, and no other major event on the schedule, we simply will have to wait and see if the pundits will be able to find an event to assign to a move should the pound follow-through on the bearish pattern that we are seeing.

Previously I had labeled the consolidation pattern that occurred from October 2016 into the May highs as a rather complex triangle pattern. At the time this pattern best fit with what I was viewing as a thrust up out of the triangle and into the resistance zone as previously noted. While we did see a fairly sharp reversal to the downside after touching the lower end of that resistance zone under this pattern. 

That reaction to the downside failed to see continued follow through. This failure to follow-through has since required a revision of how I am counting the sub-divisions within this larger degree fourth wave.

 
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