There are 5 waves down from the October high at 2.4205. This probably comprises wave 3 of a 5 wave decline from 2.4963. We wrote last week that “under this count, a 4th wave is working towards Fibo resistance / congestion area at 2.1249/2.1813. Expectations are the GBPCHF to work higher and reverse in this area before heading to a new low (below 1.9421).” However, the pair has broken below a short term support line that had contained price since mid-April and the decline looks impulsive. As such, a bearish bias is warranted against 2.0775.
There is no change to the idea that “a major bullish base has formed”. We view rally from 1.9011 to 2.0906 as the first wave (probably an A wave) in a bull cycle and the drop from 2.0906 to 1.9307 as the second wave (probably a B wave) in that bull cycle. Whether the cycle proves to be 3 or 5 waves does not matter at this point. Both scenarios call for a rally through 2.0906 in the coming weeks and months. This bullish outlook remains intact as long as price is above 1.9307. Also, the drop from the December 2006 high (2.3575 is in 5 waves), which supports the argument for at least a 3 wave advance to unfold.
The GBPAUD downtrend remains strong. We wrote last week that “as long as price is below the resistance line drawn off of the 8/17/07, 12/17/07, and 3/20/08 highs, expect lower prices. Potential support is at a line that is extended from the 10/29/07 and 2/28/08 lows; at 2.0288 today (decreases about 9 pips per day).” There is also a measured objective at 2.0406 (100% extension of 2.5638-2.2184 / 2.3887). In summary, the 2.03/04 area should provide strong support that may even lead to a sizeable reversal.
A drop below 2.4112 would complete 5 waves down from the September high at 2.9718. Price is testing the Elliott channel resistance, so this is a good place for the pair to reverse and end wave 4. Risk can be moved to 2.5582.
[B]Tell us what you think about this report: contact the strategist about the article at <[email protected]>[/B]
[B] [B]TREND ANALYSIS[/B] is based on a rolling pivot model. LONG TERM TREND is determined by the last 3 months of price data (high, low, close). SHORT TERM TREND is determined by the last 4 weeks of price data (high, low, close). R3, R2, R1, PL, PH, S1, S2, and S3 are provided to aid in identifying entries and exits. These are objective measures and our subjective analysis (STRATEGY) may differ.
[B]SCHEDULE[/B]
Monday: EURGBP, EURCHF, EURCAD, EURAUD, EURNZD
Tuesday: EURJPY, GBPJPY, CHFJPY, CADJPY, AUDJPY, NZDJPY
Wednesday: GBPCHF, GBPCAD, GBPAUD, GBPNZD
Thursday: AUDCHF, AUDCAD, AUDNZD
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