Tuesday, July 21, 2015

Tripple Zigzag In EurGbp.

The analytical chart below shows the dip of EurGbp from 0.98 to 0.695; a dip of more than 2800 pips in a period of  5 and a half years.


Prior to this dip, there was an advance from 0.566 at the beginning of this millennium (2000); that was more than 8 years.

It is clear that price reversed from 0.98 and still going southward. Few questions that might cross our minds include the following:

1. Is the bearish dip a trend reversal or correction?

2. If it's a correction, where and how could it end?

The two questions above can be answered by elliot wave theory to a great deal of accuracy.

 Elliot wave theory clearly distinguished between a correction and a reversal. A reversal is called a motive wave while a correction is called a corrective wave. 

These waves are arranged in recognizable and calculated patterns.

The bearish dip in EurGbp does not look like a motive wave, it's a clear corrective wave, a deep one, retracing deeper than 50% of the preceding bullish trend.

If the dip is not motive, what corrective pattern does it form and what do the internal waves and other projecting tools project for its terminus?

Does the diagram above look like the dip in Eurgbp? Yes it does. What do we call this pattern?

It's the triple zigzag corrective pattern. It's a very deep pattern that tends to retrace close to 100% of the prevailing trend.

This pattern is similar, in the way it looks , to a 5-wave impulsive move ( a motive wave). But there is a big difference between them.

1. In a 5-wave impulsive move, wave 3 is never the shortest while this is not important in a triple zigzag. In fact in the Eurgbp dip we are considering, this is the case.

2. In a 5-wave impulsive wave, wave 1,3 and 5 are motive waves and 4, 5 are corrective; while in triple zigzag, two or three of the motive waves are zigzag or double zigzag patterns.

The chart above is the elliot wave analysis of the dip and it's more probably going to end as a double zigzag pattern. If this pattern holds, we could see Pound sterling strengthening  against the Euro in about a decade's time. 

How that will happen, we don't know. Different news and events are going to surface to confirm this move.

Elliot wave theory has answered the first question. The dip is corrective in nature and price should rally to continue the bullish trend.

Where and how will the correction end?

These could be answered using elliot wave and fibonacci tools. By the recent triangle breakout ( knowing that triangles usually precede the end of a trend or correction), price is expected to complete the 5th wave in a a 5-wave motive wave pattern. 

Using the entension and projection fibonacci tools, the long term bullish move could start at 1.674 region or 1.64 region.

Only time will tell how price confirm this forecast. Our responsibility now is to watch price behaviour, incorporate in our wave count and wait for the completion of a tradable pattern

I will post an update.

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