The GBPCHF cross pair is one of the currencies on the FX dashboard that consolidated for most of the year. It finds it difficult to push over the 1.20 level, and if it does so, sellers step in, and the selling pressure mounts.
But the horizontal consolidation on such a volatile currency pair also means that the pair is coiling or building energy to break higher. From an Elliott Waves point of view, the consolidation looks like a double-three combination, a pattern that typically forms at the start of the extended third wave in an impulsive move.
The Bank of England‘s monetary policy decision today did surprise markets. While investors expected an increase in the quantitative easing of about GBP100 billion, the central bank raised it to GBP150 billion. On top of that, it announced that it still views negative rates as possible, and the research on the topic continues.
By increasing the QE package, the central bank said that it expects inflation to reach its 2% target in a couple of years. However, investors should be aware of the COVID-19 economic implications as well as the Brexit deal that may or may not be reached with the European Union.
Despite more easing and dovish rhetoric, the GBP did not react to the Bank of England’s message. In fact, the GBPUSD pair is up over a hundred points, and only the EURGBP shows strength in the aftermath of the BOE’s message. However, that may be due to the EUR strength rather than GBP weakness.
The horizontal consolidation on the GBPCHF cross may be either the second wave of an impulsive structure or the b-wave of a zigzag. In both cases, it should be followed by an impulsive wave as the third wave in an impulsive structure or the c-wave of a zigzag.
As such, bulls may want to wait for a break and close above 1.20 before going long for 1.2418 with a stop at 1.18, for a risk-reward ratio bigger than 1:2.
