GBP/USD has been strengthening recently on the heels of a poor performing US Dollar. The longer-term picture for GBP/USD is not as rosy. The longer-term forecast is for Cable to retest 1.19. The question becomes, has the high been set for this move lower? The Elliott Wave model would agree the September high was an important high.
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In our previous report, we were unsure if the minor wave 2 was finished or not. It turns out GBP/USD needed to subdivide a bit higher. On an intraday chart (below), GBP/USD is approaching the 61.8% retracement of the September to October downtrend at 1.3417. This may provide strong resistance as we are anticipating a partial retracement of the September to October downtrend.
We think this partial retracement higher is a minor wave ‘2’ of a five wave motive wave. Therefore, we appear to be early in downtrend.
Sentiment is not strong now at -1.23. This means the majority of the traders in GBP/USD are short the market. In fact, the number of short traders has been growing while the number of long traders has been falling. Sentiment is an excellent contrarian tool so this signals additional gains for GBP/USD. Our Elliott Wave analysis suggests a shorter-term top is looming nearby. Keep an eye on the live sentiment reading as a shift towards bulls may provide an early warning signal of a top.
The key level to the bearish bias is the September 20 high of 1.3657.
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---Written by Jeremy Wagner, CEWA-M
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