Forex Technical Update July 15, 2010  GBP/JPY: Stalking Choppy Range for Wave 'e'

  • Day: I want to introduce a technical indicator that was added last month in the latest VT Trader release. It is called the choppiness index and without getting into the details, it is similar to the ADX in that it helps identify choppy ranging action versus sharp trending action. Of course a lag exists as with any indicators.
  • The first 2 highlighted area shows the choppiness index declining. The lower the index the sharper the trend. The higher the index, the choppier the action. Choppiness here reflects how significant retracements are within the previous n-period. Here 14 is used. Notice that the current highlighted area reflects choppy action. The index is high and remains high above 50. However, we may be seeing the choppiness start to subside.
  • Assuming there is a cycle between choppiness and trendiness, we can try to anticipate when the break out is by stalking the consolidation pattern for completion.
  • We know this is always difficult because often, a complete consolidation pattern leads to another. So keep that in mind.
  • Now looking at the sideways range, we see a slight convergence between tops and bottoms. Also, the count is at wave d. So a decline would be marked wave e. 5-waves is a standard structure for consolidation patterns such as triangles and wedges.
  • I believe that the market has spent enough time in ranging action. Perhaps the USD is in the spotlight so the JPY pairs are waddling with choppy action.
  • I am anticipating a bottom near 132 next week to start a sharp rally. I will continue to post if price action confirms or devalues this outlook. Stalking this wave e is going to help me assess 1. is the ranging mode over? 2. What direction has the market picked?

  Fan Yang Currency Analyst Commodity Trading Advisor

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All screenshots are made from VT Trader 2.0 and are of actual market data at the time of the screenshot.