daily technicals

British Pound Bear Wave Underway - Short Term Targets Near 2.0000

Monday, 06 August 2007 11:46:37 GMT  |  Jamie Saettele, Technical Currency Strategist

• Euro 1.3852 Key Level
• Japanese Yen In Corrective Mode Now
• British Pound On Way Towards 2.0000
• Swiss Franc Thrust From Triangle
• Canadian Dollar In Reversal Zone
• Australian Dollar Near Term Bullish
• New Zealand Dollar Inverse Head and Shoulders

Commentary:  The complex correction idea that we proposed last week remains valid.  We are treating the decline from 1.3852-1.3611 as wave A in a larger A-B-C correction.  The rally from 1.3608 is wave B and the decline underway no is wave C and should come under 1.3608.  A drop under 1.3727 would instill confidence in the bearish outlook.  An alternate bullish count would be favored if the rally from 1.3608 traces out 5 waves (so far it is just 3). 
   
Strategy:  Remain bearish, against 1.3608, targets is under 1.3608

Commentary:  The drop under 117.59 satisfies minimum expectations for a 5th wave in a 5 wave decline that began at 124.13.  This intial 5 wave decline makes up larger wave 1 or A in the new bearish cycle.  Larger wave 2 or B is expected to unfold from little if any below 117.18 and makes its way to the Fibo reversal zone of 119.83-121.47. 
 
Strategy: Flat

Commentary: On Friday, we wrote “look for a terminal thrust from this triangle into 2.0400/73 before a reversal.”  The GBPUSD hit 2.0462 this morning to complete wave c of an a-b-c correction from 2.0181.  Expectations now are for a drop to at least 1.9989 (100% extension of 2.0654-2.0181/2.0462).  Potential support near this level is reinforced by the 61.8% of 1.9621-2.0654 at 2.0016.  

Strategy: Remain bearish, against 2.0654, target 2.0020

Commentary:  The long term head and shoulders reversal is no longer intact as the USDCHF has dropped under the December 2006 low of 1.1877.  The break lower suggests that the decline is the beginning of a thrust from a triangle.  A measured objective for the end of the terminal thrust is 1.1364 (the 161.8% extension of 1.2468-1.1960/1.2165).  The structure is bearish as long as price is below 1.2165. 

Strategy:  Bearish now, against 1.2165, target 1.1400

Commentary:  There is no change to the outlook that calls for a reversal.  “The rally from 1.0340 is clearly impulsive, signaling that the trend has changed from down to up (and at least one more 5 wave rally will occur).  Wave c of the a-b-c correction from 1.0699 is unfolding now and should bottom in the 1.0477-1.0562 zone.  This is the 61.8% to 38.2% of 1.0340-1.0699.”  It is possible that the pair chops lower to test the bottom of the zone at 1.0477 (alternate arrows in red).  1.0340 is the line in the sand.

Strategy: Bullish now, against 1.0340, target TBD

 
Commentary:  The decline from .8870 is the beginning of larger wave 4 within the 5 wave rally from .7268.  Over the next several weeks, the AUDUSD could decline to the former 4th wave at .8162.  Wave A of the decline ended at .8458 and wave B is underway now.  Wave B is unfolding as a flat and may top close to .8664 (50% of .8870-.8458).  It is also possible that the larger 4th wave is complete and that the rally underway now is larger wave 5.  Either case is near term bullish until at least a rally above .8614.  The form of the rally will tell us what to expect in the future. 

Strategy: Flat

 

Commentary: Kiwi is in a similar position.  “A larger B wave or (2nd wave) is unfolding from .7553, which we expect to exceed .7731 before wave C (or 3rd wave) brings price much lower.  The 38.2% of .8108-.7553 at .7765 is an objective for the end of the rally from .7531.”  Near term, Kiwi is bullish against .7531 as the pattern unfolding from .7553 may be an inverse head and shoulders.       
 
Strategy:  Bullish now, against .7531, target .7750 

*JTREND is a proprietary calculation that uses recent highs, lows and closes to determine the trend.  JTRENDLT is the longer term trend and uses the last 4 weeks of price data.  JTRENDST is the shorter term trend and uses the last 5 days of price data.  An example is below.  Blue bars denote bullish trend and red bars denote bearish trend.  The chart below is the EURUSD weekly chart. 

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