Forex Technical Update July 20, 2010  EUR/GBP: Double Top Action Suggests a Correction

  • 1H: The EUR/GBP has been very bullish. The higher time-frame outlook can be found in yesterday's update (EUR/GBP 7.19.2010). Today however, I will follow the pair in a shorter time-frame. Even though it will be bearish, keep in mind the bullish implications seen in the higher time-frame. If the near-term bearish scenario looks to extend, then we may start adjusting the higher time-frame outlook.
  • In fact it appears we are seeing impulse bullish waves, so we may expect a 3-wave down if the current double top seen in the 1H chart forms. It appears most likely about to form if the 0.8485 line is broken cleanly.
  • A near-term target is the 0.84270 area, which is 50% retracement. This would follow Elliott Wave guidelines for a correction of an impulse wave that started with the first upswing on July 15. You can see that we have just finished a 3rd wave up. The guideline for a correction is one somewhere back towards the 3rd wave, and 50% retracement.
  • So accordingly, a near-term projection for the current decline from a double top is 0.8430/0.8420. Be aware that a positive reversal may be forming (the RSI low is already lower than the previous, but the price has yet to reach the previous low at 0.8420 area.
  • However if this is a more major correction, there is some more room to go lower as the 4H chart shows.

  • 4H: Here in the 4H chart, you can see that the 0.8430 area is 23.6% retracement of the entire upswing since June 29. I am not sure if this rally is an impulse wave because I don't see the wave 3 clearly. In fact if I fit a wave 3 in the middle, it appears that wave 1 and wave 5 are the sharpest, not an ideal impulse wave.
  • In anycase, we do see that for this swing, 50% is near 0.8300. This is the more aggressive target, if the 0.8430/20 support breaks.
  • However, if the market does not even reach 0.8430, we can see in the 1H chart that a positive reversal would be forming and suggest continuation rally.

  Fan Yang Currency Analyst Commodity Trading Advisor

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