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The GBPCHF is tracking out preferred count.  We wrote last week that “there are 5 waves down from the October high at 2.4205.  This probably comprises wave 3 of a 5 wave decline from 2.4963.  The pair has broken below a short term support line that had contained price since mid-April, which is evidence that wave 4 (iv) is complete.  Also, the decline on intraday charts looks impulsive.  We remain bearish against 2.0963.”  The GBPCHF has dropped below 2.0200 today and risk can be moved to 2.0594.

The labeling for GBPCAD has changed slightly but the bias is still bullish.  We view rally from 1.9011 to 2.0906 as the first wave (probably an A wave) in a bull cycle and the drop from 2.0906 as the second wave (probably a B wave) in that bull cycle.  Whether the cycle proves to be 3 or 5 waves does not matter at this point.  Both scenarios call for a rally through 2.0906 in the coming weeks and months.  This bullish outlook remains intact as long as price is above 1.9011. 

We’ve been bearish for some time, keeping this bias because of the resistance line drawn off of the 8/17/07, 12/17/07, and 3/20/08 highs.  Potential support is at a line that is extended from the 10/29/07 and 2/28/08 lows; at 2.0176 today (decreases about 9 pips per day).  If reached, the psychological 2.00 level would likely provide some support.

Quite often, it is the simplest charts that tell us the most.  The February low made a double bottom with the December 2006 low just above 2.41.  Since then, there has been a small bull leg followed by a 2 month consolidation (since March 10).  The pair is pressing against the top of that congestion zone; which presents the opportunity to get long for a bullish break.

Tell us what you think about this report: contact the strategist about the article at jsaettele@dailyfx.com