The GBPCHF cross bounced impressively from below the 1.20 level. It consolidated for such a long time that the rally may easily be considered as a relief one.
In fact, we may say it is a relief rally. It was triggered by the COVID-19 vaccine hopes made public this Monday. Growth stocks collapsed, and with them the safe-haven currencies too. Moreover, the GBP benefited from new prospective of a trade deal with the European Union now that a new administration comes to Washington.
Brexit Deal On the Table After the U.S. Election Outcome
Biden is no Trump. While Trump considered the European Union as an economic threat to the United States, Biden does not. As such, if Trump’s administration may have close its eyes on the U.K. breaking the Good Friday accord, Biden won’t.
A lot of speculation makes round on the markets as to where Biden will travel first – London or Brussels? If he chooses Brussels, it is a political sign that he endorses a trade deal, and this is what the market focuses on at the moment.
As such, the GBP is up across the board. The GBPUSD pair trades higher than the EURUSD does, the GBPJPY bounced to 140, and even the EURGBP dropped below 0.89 on a better Brexit deal prospective.
The Elliott Waves Theory tells us that an impulsive wave must have at least one extension. The extended segment refers to the longest segment of the motive waves – in this case, the 3rd wave. As such, the minimum distance that the market should travel is 161.8% when compared to the 1st wave’s length.
All in all, bulls have more to ask from this move, as the entire five-wave structure should be only the beginning of an impulsive wave of a bigger degree. To trade it, bulls may wish to remain long with a stop at the end of the second wave and target the 1.25-1.26 area.