Near-term bullish targets for the Pound
We're pleased to begin contributing analysis at Investing.com. For our debut post, we wanted to highlight some nearby opportunities with British Pound Futures from a technical and Elliott wave perspective.
The Pound's rally during the first weeks of October has clarified our expectations about upward targets and has made it possible to identify some specific areas where the next sizable decline might begin. This post describes our main scenario for price action during the remainder of 2019 and beyond. We will follow up with a second post soon describing our alternate scenario.
Currently price appears to be reaching for a Fibonacci-based resistance target at 1.3376. If price rises to that level as expected, then some minor resistance levels may turn into supports along the way, and they can serve as reference points for launching new trade entries and placing stops. Those minor levels sit at 1.2848, 1.3028, and 1.3231. (Think of them as "stepping stones" leading to the main target.)
Traders working on time frames of days or weeks should consider that, even though the Pound still presents a bullish environment for now, the upward move may be approaching an area of consolidation or exhaustion. Notably, the 30-week empirical price cycle is nearing a crest, and the more rapidly responsive Lomb periodogram also suggests a local high may be nearby.
The context for our main near-term target at 1.3376 is based on viewing the price action since January 2017 as tracing an Elliott fourth wave in a downward impulsive pattern that began in 2007. You can read a brief explanation of impulsive patterns here.
On the futures chart above, the fourth wave is labeled as [iv], and it consists of smaller sub-waves (a), (b) and (c). We believe the final upward sub-wave (c) of [iv] is still developing, reaching for the targets we described.
In predicting how far sub-wave (c) of [iv] can stretch and where it might end, the most important factor is the price range of the earlier sub-wave (a). Often there is a Fibonacci ratio relationship between the two sub-waves. In the present case, our main resistance target at 1.3376 is based on an expectation that sub-wave (c) can reach approximately 61.8% of the length of sub-wave (a).
If price overcomes the first major resistance area at 1.3376, then the next prominent resistance level to consider as a target would have sub-wave (c) stretching to become equal to the length of sub-wave (a) – in other words, a one-by-one relationship. Thus the 1x1 target awaits at 1.4426 if the first major resistance is overcome decisively and turns into support.
For anyone trading the current rally, it is helpful to know that sub-wave (c) of [iv] must take the form of a small impulsive wave. Thus it should have a five-wave 1-2-3-4-5 structure, with the middle wave '3' being relatively strong. This implies some things to watch for that would suggest our main scenario is not working. (Elliott wave traders always keep track of where price movement would invalidate the scenario they're working from.)
The major resistance levels we mentioned at 1.3376 and 1.4226 serve not only as bullish targets, but also as areas to watch for the Pound's downward reversal. Based on some measurements of the entire, large impulse that began in 2007, a very preliminary downward target from a reversal at 1.3376 would be 1.1262. (If 1.3376 is broken decisively, then we will be forced to calculate a different support target for the eventual downward move.)
Watch for our forthcoming post showing our alternate Elliott wave scenario for the Pound. In the case of the British Pound, the alternate scenario is a close contender with the main scenario, so it is definitely something traders will want to keep in mind.