Forex Technical Update July 27, 2010  GBP/JPY: An Impulse is Born Out of Congestion

  • Daily: Yesterday's interpretation of a positive reversal anticipated a rally after a correction. The market indeed continued to rally, and an impulse wave is born. I will look at the internals in the chart below, but first from the chart above, I want to note that the market broke above congestion resistance, but there is still resistance at 136.40 (50% retracement).
  • A throwback may be a good test of whether the current bullish attempt is sustainable.
  • The blue indicator on the bottom is the Choppiness index (14). When the index is high, or rising, the choppier and stronger the retracement. When this happens, to me the market is entering or is in a ranging mode. When the choppiness index declines and is low, it means the market has entered a trending mode. The trending mode is usually shorter in time than ranging mode, and so you see that the oscillations should be dominated by rises (I have not tested this empirically, feel free to check out the choppiness index in VT Trader).
  • The main point is that the index is starting to turn down, meaning the market is starting to come out of the ranging mode it has been in since June.

  • 4H: The rally is convincing the 4H time-frame, as we can clearly see an impulse wave developing. If so, we are in the terminal wave 5, and a correction should follow.
  • Since the 136.40 level offers resistance, the market may pause there.
  • Assuming that, a correction throwback ideally stops above 133.60, but can still extend to 133.00 and be considered wave II.
  • Looking back at the daily, if the market does continue rallying, a target for the swing is the 140 area.

  Fan Yang Currency Analyst Commodity Trading Advisor

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