British Pound Headed for Test of 2001 Low at 1.3680

Tue, 20 Jan 2009 08:26:36 -0500

By Jamie Saettele, Senior Currency Strategist

-euro / dollar gives up 1.30 - support at 1.2634
-USDJPY down against 91.33
-USDCHF approaches Fibonacci at 1.15



I wrote yesterday that “a drop below 1.3023 could also complete a double zigzag (two zigzags connected by an x wave) decline from 1.4723.”  The EURUSD has dropped below 1.3023 and the next level of measured support is at 1.2634.  This is where wave c equals wave a within the second zigzag.  Potential support prior to that is the line drawn off of the bottoms of waves a and c of the first zigzag.  Once there is evidence to support formation of a low, I will discuss so in these pages.



I wrote last week that “there are 5 waves down from 94.67, therefore a correction is expected.  Resistance begins at the 38.2% of 94.67-88.76; at 90.97.”  The USDJPY corrective advance is most likely complete at 91.33 since the drop from there looks impulsive (5 waves) on very short term charts.  A push above there would not alter the bearish structure though as staying below 94.67 keeps bears in control. 


The GBPUSD broke the 1.4347 level and has declined some 500 pips more since.  Expect additional downside in wave 5 (within the 5 waves decline from 2.1160) and a drop below the June 2001 low of 1.3680 prior to formation of an important bottom.  Former intraday support at 1.4129 is potential resistance.


Over the past few weeks, I have written that “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.”  The USDCHF is just shy of the 1.15 objective and 240 minute RSI above 80 suggests that at least a corrective decline is due.  Even so, a push above 1.15 targets 1.18; which is where wave c would equal wave a.  Bulls may wish to lighten up and move risk on the rest of the position to 1.11, targeting 1.18.


I have written at length in recent weeks about the triangle in the USDCAD.  Triangles unfold in 5 waves (a-b-c-d-e) and wave d is nearing completion.  A push above 1.2679 likely completes wave d and leads to a decline in wave e. The best strategy is to wait for wave e to end before attempting a long position (may be late this week), although high risk takers may wish to try the short side against 1.3012, targeting a drop in wave e towards 1.20.


5 waves down from .7275 and 3 waves up from .6534 confirms that the larger trend remains down.  .6676 is potential short term resistance and a rally to there warrants a bearish stance against .6846, targeting a drop below .60.    


There are 5 waves down from .6041 and 3 waves up from .5274.  This price action confirms that the larger trend is down (5 waves with the trend and 3 waves against the trend).  Even shorter term, the decline from .5551 appears impulsive.  Initial resistance is at .5357.  A rally to there warrants a bearish stance against .5551, targeting a drop to a new low (below .5186).



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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