The GBPCHF cross is responsible for one of the longest consolidation areas in 2020. For more than six months, the pair flirts with the 1.20 level. However, every time it attempted to break higher, it failed.
The bounce from 2020 lows looks like a zigzag formation according to the Elliott Waves theory. Effectively, it explains the current consolidation for the b-wave, and now it sets the stage for the impulsive wave in the c-wave of the pattern.
Renewed Optimism Over a Brexit Deal
The GBP advanced across the dashboard yesterday on renewed optimism over Brexit. News that the EU and the UK will continue discussions were seen as bullish for the pound. As such, the GBPCHF cross bounce from the lower edge of a possible bullish flag and even broke the upper edge on its way.
More than that, the UK and the EU see a deal possible until the end of the year. Therefore, with an end of the transition period in sight, investors bought the GBP.
However, the GBPCHF cross is not only about the GBP, but also about the CHF. One of the strongest currencies during the pandemic, the CHF was also bough aggressively lately. Therefore, a higher USD across the board will translate to a higher USDCHF that may support the GBPCHF bullish scenario.
GBPCHF Elliott Waves Analysis
Now that the price broke the bullish flag, it sets the stage for the extended wave of an impulsive structure. To trade it, bulls may want to wait for a break of the 1.20 before going long. Next, bulls may consider a stop loss at the end of the second wave and a take profit at the end of the five-wave structure, projected at 1.2437. This way, the trade follows an appropriate risk-reward ratio.
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