Is there more to go in the GBPJPY decline?
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Correcting Higher Before Another Decline - On the weekly chart, JPercentile turned down from 100% a few weeks ago, indicating that a longer term top was in place. The confluence of trendline and support from November 2006 intersect near 217.50 next week. However, in the near term, we expect the consolidation / correction unfolding from 221.05 to reach Fibonacci resistance near 227.50.
Weekly Chart Indicates Top and Additional Weakness Ahead
The JPercentile indicator turned down from 100% on the week that ended 1/19. Although the pair has declined nearly 2,000 pips since then, we are still looking for a test of the trendline drawn off of the July 2005, March 2006 and April 2006 lows. That line intersects with The November 2006 lows (previous 4th wave of one lesser degree) at 217.34 next week. We are treating the sharp decline as a 4th wave decline, so in the longer term we anticipate a 5th wave to above 241.49.
240 Minute Chart Suggests Additional Gains Before a Break Below 221.05
The short term wave structure is depicted on the chart above. The decline from 238.15 to 221.05 is a 3rd wave, which places the recent bounce as a 4th wave. We expect this bounce to challenge Fibonacci resistance, beginning at 227.58 (also near former congestion?which is circled). We do not know what form this 4th wave correction will take, although it will probably by choppy, perhaps a triangle. The wave 2 correction was sharp (see above), so probability favors a flatter correction (as suggested by the rule of alternation). In other words, the GBPJPY could move down to 223 and then back up above 226.23 in order to complete the wave 4 correction. The point to take away is that this correction has a bit more to the upside and the 227.50 level is a high probability sell zone. The ensuing 5th wave will take price under 221.05. In order for the larger bearish structure to remain intact, price must remain below 232.09. We will be publish updates regarding this setup in FXCMTR technicals (available to FXCM clients) as price action dictates.