What means a bullish EURGBP?
This cross pair could give you valuable extra support if you are investing in its main components EURUSD and GBPUSD. The correlation at the weekly range is 0.4 with the pound and 0.6 with the euro, but the most valuable information is coming from the speed in the movements, as the correlation between the EURUSD and GBPUSD is 0.9. This means the movements from the pound can be explained in 90% by the movements of the euro, as we can see in the chart below.
The active sequences in the EURGBP are 2 at this moment, these are the ones defining the memory impact and potential future waves. The motor wave started in 0.6930 and ended in 0.9306, with an internal structure of a zigzag or 3 waves. The ideal corrective wave should end inside the dotted lines and the green or blue attractors. If a bounce happens here, then the chances for new highs increase to 60 – 70 %, turning above 80% with the break of the key level in 0.9116.
At this moment the bounce took place in the ideal distribution area, increasing the chances of new highs for the pair. Based on the correlation between EURUSD and GBPUSD 2 scenarios could take place,
1- Both pairs develop an uptrend, but the EURUSD will do this faster and stronger.
2- Both pairs develop a downtrend but the GBPUSD will drop faster and stronger.
We can conclude then, for long positions is better to go for the EURUSD and for short ones for the GBPUSD.Back to Blog