British Pound Approaching Short Term Top; Support Begins at 1.50

Thu, 08 Jan 2009 09:14:29 -0500

By Jamie Saettele, Senior Currency Strategist

-EUR/USD resistance below 1.40, rally likely fails
-GBP/USD into short term top, support begins below 1.50
-AUD/USD struggling at key resistance



As mentioned yesterday, “due to the fact that the pair remains close to the center of a large correction, I can not be confident that 1.3310 will hold.  In fact, given that a triangle or flat is probably underway, I see it as unlikely that 1.3310 holds up.”  There is a potential short term resistance line just shy of 1.40 for the next several days.  A drop below 1.3310 would target support near 1.31 (former resistance) and ideally complete small wave b.      


I returned as a USDJPY bear yesterday because “USDJPY sellers came in just before the 61.8% of 1006.60-87.09 at 95.21.  This is also the center of a former congestion zone (roughly 94-97) as well as the 100% extension of the rally from 87.09 to 91.31; at 94.08.”  A bounce of recent weakness near term to former support near 92.30 is a possibility but there is no reason to alter the larger bearish outlook.


I wrote yesterday that “Additional upside is expected.  The next resistance is former support at 1.5259.  1.5420 is calculated monthly pivot R1.  Risk can be moved to 1.48.  The GBPUSD came close to 1.54 but 5 waves up from the low strongly suggest that the bulk of the move, at least in the short term, is complete.  Weakness is expected down to at least 1.4980 over the course of the next several days.  


The sharp drop from 1.23 is in 5 waves and probably wave A within an A-B-C correction that will end below 1.0367.  The rally from 1.0367 is the B wave of that sequence and likely tests resistance from Fibonacci 1.15, eventually.  Wave b of B is underway now and I’ll look to identify an entry point to go long in order to catch wave c of B up to 1.15.


We need to wait for the USDCAD to complete this 4th wave correction prior to taking a directional stand.  A drop below 1.1459 would do the trick as that would most likely be the end to a flat.  A triangle is also not out of the question, although in that case a tightening range would last at least a month or more.


The AUDUSD has reached initial resistance from the confluence of the October 14th high / 38.2% of .9856-.6005 at .7247/56.  The structure of the decline on very short term intraday charts (15 min) is promising from a bear’s perspective (decline looks impulsive).  Even if wave (2) is not complete, it is likely that the rally from .6005 would experience a sizeable retracement because it is in 3 waves (a flat with structure 3-3-5 could unfold).


I would still like to see the NZDUSD complete 5 waves up from .5186 but with patterns in the GBPUSD and AUDUSD suggesting weakness, I am not confident that Kiwi will exceed .6090.  In any case, a push through would target Fibonacci resistance at .6183, which is combined with former congestion (circled).


Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published at 6 pm EST), Daily Technicals every weekday morning (9 am EST), COT analysis (published Monday mornings), and analysis of currency crosses throughout the week.  He is also the author of Sentiment in the Forex Market.


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