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Near Term Upside Potential, but a Big Decline Awaits

Friday, 14 December 2007 18:16:17 GMT

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Written by Jamie Saettele, Technical Currency Strategist
We last wrote about the GBPJPY here at Weekly Chart Analysis during the first week of October. That article can be found here. That article called for a B wave top in the 239/244 zone. The pair topped for good a few weeks later at 241.35 and we maintain that wave C is underway towards 210.00. For much of the year, we have been following the Dow to aid in our analysis of the Yen pairs.  This edition of Weekly Chart updates the wave structures of both the GBPJPY and Dow.  The GBPJPY wave structure strongly suggests that the end of the year will provide traders with both bullish and bearish opportunities.    

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From last week:
 
“The recent rally from 12,724.82 challenged and stalled at the 61.8% of the decline from the October top. The rally is in 3 waves (corrective) but is likely just the first corrective leg in a more complex correction. Since the rally is in 3 waves, we know that a large flat will probably unfold. In this case, it is likely that we see price decline to at least 61.8% of the recent rally (which would be 13,085).”

 

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The Dow pattern is playing out as expected.  The index did push through the 61.8% at 13,636 at the beginning of the week and topped at 13,778.  Regardless, price is sliding lower in wave X and we do expect a test of the 61.8% of 12,724.82-13,777.84 at 13127.07 before the final leg of the correction leads to a push through 13,777.84. Look for the Dow to bottom this week near 13,127.07.  

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The Dow wave structure gives us confidence in the GBPJPY wave structure that calls for marginal weakness from current price to be followed by a rally towards a resisting trendline before the next leg lower begins. The trendline is defended by chart resistance at 232.38 as well as the 61.8% of 241.35-221.27 at 233.68. We expect a top and reversal in this zone. The next leg lower is expected to challenge 210.00. Very short term, expect a drop below 227.45 and possibly a test of the 61.8% of 224.80-230.33 at 226.91 before the GBPJPY rallies towards the mentioned trendline.
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