Do you remember, when GBP/USD reached 2.1159 in November 2007? Do you remember, when it fell to 1.3502 January 2009? Do you remember when it recovered to 1.7190 July 2014? Well, you better do, because these are the three key points, which paved the way for the crash we are currently witnessing. Wasn’t it Brexit, most would ask. When the British referendum results were announced, GBP/USD was trading slightly above 1.50. That is nearly 22 figures below the July 2014 top of 1.7190, which means Brexit is not the start of anything. It is merely a consequence of the downtrend, which has been in progress for over two years already. Or for over eight and a half years, depending on how you look at it.
On May 17th, 2014, we published “GBP/USD, Not As Optimistic As It Seems”. The chart below was included in this article. It shows why are the three above-mentioned key-levels so important.
2.1159 is important, because it is the actual beginning of the multi-year downtrend, which is still in progress today. 1.3502 is important because it was the end of the first phase of the downtrend. The second phase, the recovery to 1.7190, was nothing more than a correction within the larger bear market. As technical analysis states, once a correction is over, the larger trend resumes. That is the reason why we were extremely bearish on GBP/USD over two years ago. As the forecast depicts, the bottom at 1.3502 was supposed to be breached in the long term. Today, July 6th, 2016, the pair fell to as low as 1.2794. Let’s see how the sell-off looks like on an updated chart.
“At best, news is the tardy recognition of forces that have already been at work for some time and is startling only to those unaware of the trend.” Ralph Nelson Elliott said that. So, before saying that Brexit caused the pound to plunge, consider the fact that the downtrend actually began in November 2007. Then, when you understand that this downtrend simply resumed in July 2014, you would come to realize Brexit did not cause anything. The natural law of the market did. The Elliott Wave Principle is the method we used to predict GBP/USD’s decline two years ago.
Now, wave counts should be changed and updated as often as the market inspires a better idea. That is why there are no labelings on the second chart of GBP/USD. The count we came up with in 2014 is no longer the best one. We have a new one, which looks much more probable. Hint: it is not looking good for the sterling.