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GBPUSD: Watch for an Explosion Higher

Wednesday, 16 January 2008 17:33:11 GMT

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Written by Jamie Saettele, Currency Analyst

The GBPUSD has fallen over 1,500 pips in the last few months.  No market moves in a straight line, so is it time for a sizeable Cable rally?  We think that sentiment indicators along with the patterns on the chart indicate yes...and we know exactly when we would be wrong.

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Given the shelf of support just below 1.9500 (multiple extensions and a support line), we think it possible that at least a multi-week bottom is in place at 1.9483. As such, a bullish bias is warranted against 1.9524 for a rally to at least the 2.0100 level (former resistance). We do not know yet of course whether or not the decline from 2.1160 will complete 5 waves -- so far the decline is in just 3 waves. 

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On this very short term chart, we see what is either waves A and B or 1 and 2 of either a 3 wave advance (A-B-C) or a 5 wave (1-2-3-4-5) advance. What we have labeled i and then ii is labeled as such because the rally from 1.9527 is an impulse but has yet to exceed the previous high. This means that the trend is up for at least a rally through 1.9720. As we mentioned though, we expect a rally to test former resistance near 2.0100.
 
Be sure to visit the Elliott wave forum for more trade ideas.

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The % of total commercial positions that are long measured through a 52 week percentile is at 96 and the % of total speculative positions that are long measured through a 52 week percentile is at 0.  Cable is at a bearish sentiment extreme and an important bottom should form now (we think it has already formed). Notice on the chart that the COT indicators are lined up now just as they always are at important lows.
 
Understanding sentiment is extremely important in trading - visit the Trader Sentiment and Positioning section of the DailyFX forum.

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