USD index – At current levels, there is a mixed picture in the USD index. We have a stalling at the 61.8% pullback level of 97.27 (from 100.60-91.88) that suggests at least a downside correction. However, on an intraday basis, the selloff has stalled at an ascending triangle breakout level, a possible retest. This has made initial analysis extremely difficult.
We still have a short view in EURGBP and have sold small this morning. We may look to sell again at 0.8348 if we get small intraday rallies. The same analysis holds as our last report. Even in this cross, signals are not strong, with the 4-hour chart now highlighting a DeMark exhaustion 13, but it is the ‘best of a bad bunch’. A break in GBPUSD of the formidable 1.3280 barrier is needed to take cable higher.
Let’s look at GBPJPY:
Weekly – There has been an aggressive selloff from the 2015 high of 195.95. We have stalled and corrected from the 423.6% extension level of 130.53, a Fibonacci level that is normally seen in commodity pairs (stronger trends). Interesting to note here is the fact that we also have a Demark 12 count -- a 13 count normally highlights a change of trend. This would suggest that there is scope for a further mild selloff (but not to the lows) before bulls reappear.
With this in mind, we have two trade views today, both bullish.
Two-hour – We have seen a bullish Elliott wave count completing at 142.77.
Scenario one – We have pulled back in a choppy manner. This has the potential of being a bullish reverse Head-and-Shoulders pattern. We also have an inside symmetrical triangle formation, or pennant, that has a bias to break higher. The trendline resistance for the triangle is seen at 142.03. A break of yesterday’s high would confirm the breakout at 142.41. The target level would be 150.00
Scenario two – This is our preferred outlook, as we look for a deeper correction. An AB=CD formation would take the cross to 136.91. This is also a 161.8% extension of yesterday’s selloff, and is likely to stall downward price action. However, the prime long entry would be the Fibonacci confluence area at 134.27-133.72.
The reasons behind this view are:
1. The BC leg can be seen in three wave (common) suggesting we see a lower low than the 137.75 (July15) in CD.
2. A move to these lower levels would likely produce a DeMark 13 on the weekly chart before projecting the cross aggressively higher.
3. A move to the Fibonacci confluence area would likely produce a correction formation, with the inside wave pattern being 5-3-5 (common formation).
This outlook would suggest a change of trend, with a projection up towards 160.00.
Management and risk description
Entry: buy a break of 142.41 (a move to 145.00 and place stop at entry)
Time horizon: 7-10 days.
Trade Two (our preferred setup):
Entry: buy a dip close to 134.30 ( a break of 139.00 and place stop at entry)
Time horizon: 3-6 weeks.
— Edited by D. Deacon
Non-independent investment research disclaimer applies. Read more