The GBP/USD currency pair is currently presenting a potential buy opportunity as it appears to be in the middle of a 3rd wave uptrend—a strong impulsive move according to Elliott Wave theory. This article highlights the setup, entry, target, and stop-loss levels, with supporting technical reasoning.
Market Overview
The GBP/USD has been trending higher over the past few sessions, with strong bullish momentum indicating the development of an impulsive Elliott Wave structure. Based on recent price action and Fibonacci projections, the pair is currently in the 3rd wave, often the most powerful and extended wave in a 5-wave sequence.
Current Price Action: The pair recently broke above key resistance levels, confirming the bullish structure.
Fundamental Drivers: Hawkish expectations for the Bank of England (BoE) and signs of USD weakness amid a dovish Federal Reserve outlook are providing fundamental tailwinds.
Buy Setup
To capitalize on this uptrend, the following trade setup is recommended:
Entry Level: 1.2400
This level aligns with minor support based on a previous breakout zone and Fibonacci retracement levels. Buyers can aim to enter around this area, where the market could resume its upward trend.
Stop-Loss: 1.2344
The stop-loss is placed just below the most recent swing low, protecting the trade against invalidation of the bullish structure. This level is key because a break below would indicate a potential shift in sentiment.
Target Level: 1.2556
The target is derived using Fibonacci extensions of the previous wave 1 and wave 2 structure. The 161.8% Fibonacci projection aligns with this level, reinforcing its significance as a likely resistance zone.
Elliott Wave Analysis
Wave 1 and Wave 2 Completed:
GBP/USD formed a clear impulsive wave 1, followed by a corrective wave 2, which retraced approximately 61.8% of wave 1—typical behaviour for wave 2.
Wave 3 in Progress:
The current price movement shows strong bullish momentum characteristic of a 3rd wave. Volume and price acceleration further confirm this scenario.
Fibonacci Projections:
The 161.8% extension of wave 1 predicts a potential wave 3 target near 1.2556.
Retracement levels between 38.2% and 61.8% of wave 2 suggest 1.2400 as a key entry zone.
Risk-to-Reward Ratio
This trade offers an excellent risk-to-reward profile:
Risk (Stop-Loss): 56 pips (1.2400 - 1.2344)
Reward (Target): 156 pips (1.2556 - 1.2400)
Risk-to-Reward Ratio: ~1:2.8
This favorable ratio makes the trade attractive to swing traders and position traders alike.
Conclusion
The GBP/USD presents a compelling buy opportunity in the middle of a 3rd wave uptrend, with the potential to reach 1.2556. Traders can look to enter around 1.2400 with a well-defined stop-loss at 1.2344 to limit downside risk. The trade aligns with both Elliott Wave and Fibonacci principles, offering a high-probability setup with a strong risk-to-reward ratio.
Disclaimer: This analysis is for informational purposes only and does not constitute financial advice. Please perform your own due diligence before entering any trades.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.