- EUR/GBP completes an abc move higher after bouncing from multi-year lows.
- A break above the top of the pattern could be a sign of a reversal and birth of a new uptrend.
EUR/GBP pulls back after peaking in the 0.8440s. On Tuesday it bounced off key support (gray dashed line) at multi-year lows and surged over a penny higher. In the process it completed a three-wave, zig-zag-shaped pattern, with waves labeled a,b and c.
EUR/GBP 4-hour Chart
It is possible this pattern is just a common three-wave abc correction. If so, this could imply the correction is now probably finished, that price will roll over, and return to the base of the consolidation and the multi-year low.
However, the speed and strength of the move higher witnessed over the last few days suggests EUR/GBP may not just be correcting, but rather that it could be starting a new short-term uptrend.
The test of whether this is the case or not, will be to see whether price can now break above the top of wave c at 0.8448 (green resistance level on chart). If it can, it will have formed a third higher high and established a new sequence of rising peaks and troughs, heralding the start of a new uptrend. Give the technical analysis principle that “the trend is your friend” the odds would then favor further upside to come.
If pierce cannot make a new higher high above wave c, it is possible EUR/GBP will decline again as it continues unfolding its sideways range-bound trend.
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