Two monthly EUR/GBP charts are attached. The first discloses a shorter monthly period and Waves 5, A, B and the commencement of C. The first three Waves are identified by fractals.

Corrective Wave C is the 8th and final wave and has at least 5 legs down. Subsequent to Wave B high there has been one lower fractal which identified the first leg down. From that fractal low price retraced higher against the prior down cycle from Wave B high. Currently price traces lower from that retracement. Fib. retracement and expansion studies identify levels of resistance to lower price incident to Wave C correction.Thanks Loren

The high of Wave 3 is easily identified with RSI value the highest at that Wave since 1992. From the high of 3 price has clearly traced Waves A and B with all waves identified by fractals. Price is presently tracing Wave C of Wave 4 generally the longest corrective Wave.

The green line sloping downward represents the distance between Wave 3 and A the last down cycle and is placed at the high of Wave B. Wave C should minimally reach FE 100 at 8000 although lower price is more likely, perhaps to 78.6/FE 1.618.

MONTHLY;

Price is currently searching for the low of Wave C, the eighth and final EW leg. The vertical green line represents the distance between 5 and A applied to Wave B high. Wave C is typically the longest corrective EW. Trading bias presently is short. Corrections often require less time than up cycle for completion.

Blue STD lines relate to the prior up cycle. Lime STD lines relate to the current down cycle incident the A, B and C correction from Wave 5 high. Lower lines are resistance to lower price. Price may be expected to close below the lower lines of each study.

Fibonacci studies identify areas of resistance for lower price and the low of Wave C.

WEEKLY;

Wave B high is noted. An impulse wave down having 5 legs is noted on the chart. Price in the weekly period is searching for the low of Wave 5. Once established there will be three corrective waves A< B and C) retracing some part of the prior down cycle.

Price has previously broken below both lower SDC lines with a weekly price below Fib. retracement 127.2, which suggest next lower resistance at 1.414. In any event the low of Wave 5 has not been conclusively established, therefore the trend is still down incident to Wave 5 completion.

4 HOUR:

Price recently traced above the SDC lines (brown) in the 4 hour period a point at which a lower risk short trade exists incident to Wave 5 completion. Price previously closed below Fib. 1.272 and near longer term red 1.414. This prior low may be the low of Wave 5. Therefore TP is set just above 1.272 upon the expectation that price will again retest the prior low. The short trade provides a risk reward ratio greater than 2 to 1 and is in the direction of a well documented down trend. A RND is noted which only occurs in an established trend.

The last significant price move was from near the lower to higher SDC lines a retracement against the down cycle. From the high of the channel price has space or room to move lower incident to a continuation pattern which is important for a lower risk trade.

The short answer is that EW structure/consideration required a retest. The longer answer is understood in the attached daily EUR/USD, 5/13/10, chart and the previously posted weekly chart. These two charts objectively establish that price was tracing an inverse head and shoulder pattern incident to a corrective EW cycle.

The argument/suggestion that a retest was going to happen was made when price was near Wave 4, price near the upper line of a downtrend channel. The daily chart numbers EW fractals. Each wave is identified by its own fractal. Wave 3 low reports the lowest RSI value. When price traces an upright H&S pattern Wave 3 is identified by the highest RSI value. The reverse of this RSI tracing is observed in an inverse H&S pattern, Wave 3 traces its lowest RSI value.

When price and RSI traced Wave 3, then next Wave 4 as shown on the chart, EW structure required price to minimally retest Wave 3 low incident to establishing Wave 5. If price recognized the 361.8 level as support for the low of Wave 5 a tracing of a truncated Wave 5 low (double bottom) occurs. Price has more recently moved below 361.8 which rules out a double bottom. Next lower support for Wave 5 low is shown on the chart. Wave 5 may be extended with a low possible to Fib. 423.6 or lower. Price will always recognize some Fib. level as either support of resistance as it moves through the EW cycle. Loren

Attached monthly chart which begins in 4/89, and shows price tracing an expanding triangle. This is one of eight corrective EW patterns which may be traced following the high of impulse wave 5. We do not have enough data to visualize prior wave 5 high. This pattern has developed over the last 20 plus years and is creditable. Expanding triangle patterns always trace 3 wave corrective patterns and never impulse, 5 wave patterns. Therefore RSI and other similar indicators will trace different shaped patterns in corrective vs. impulse waves. RSI is used in this chart because it is the most consistent with respect to its price/RSI patterns.

Price has clearly established an extending triangle pattern which means that all waves within this pattern will trace only three waves. Wave B to C traces a three wave pattern identified by RSI with the lowest RSI value at Wave c/C low. Wave C to D likewise traces a three wave pattern with the highest RSI value at Wave c/D. Wave a as noted also traced two extended Wave a’s. Extended Wave a serves as the left shoulder of an upright H&S pattern.

Wave D high is the head of that pattern. Waves a and b are now historical with respect to present Wave E. Price presently tracing Wave c and is testing Fibonacci expansion 141.4 for support. Two previous support and resistance fractals are circled in blue and argue for additional support near this level. Examination of the weekly chart shows RSI tracing 13.8 a morbidly oversold level. An additional objective consideration that this level may identify support for a retracement against the down cycle in Wave c. The FE 141.4 support level has not yet been conclusively established.

At this level RSI traces an active double RPD noted on chart, suggesting higher price. The above mentioned objective factors argue that price has probably found support at or near the 141.4 Fib. level and that a retracement higher may be expected. This will be a retracement against a confirmed down cycle incident to longer term Wave E. The retracement may be followed in either the 1 or 4 hour periods and will trace a three wave (a, b and c) pattern with the highest RSI value at Wave c high. At that point a lower risk short trade may be initiated to join Wave E.
Two symmetrical studies are placed on this chart. They are based on the distance from the head to Wave a low. The brown line is applied to Wave b high an extends downward to just below FE 161.8. The second magenta line is applied to Wave a low (neck line) and extends downward to the horizontal red line. Completion of an upright H&S pattern argues that price will extended below the neck line a distance equal to the distance from the head to the neck.

Monthly price bar has currently opened and closed below the neck line which argues the down cycle will ultimately complete.
A retracement will likely occur either at FE 141.4 or 161.8. The completion of that retracement will introduce a lower risk entry short.

Use the same chart for study of the weekly period. RSI in weekly period is now tracing the probable low of Wave c with RSI at 13. This signifies exhaustion of price in this period and thus a pending retracement.

Attach chart offers possible Fib. retracement and expansion levels resistance to higher price incident to Wave a high. Wave c/a high traces a RND. No fractal has yet formed at this high.
Wave a also traces as do all waves a three wave pattern . . RSI highest value at likely Wave c/a high.