British Pound Headed Back to 2.00

The Top Ideas report released at the beginning of every week includes TREND analysis and SENTIMENT analysis. The STRATEGY table is updated everyday as risk and target levels change.

EUR/USD

A triangle as a 4th wave may be complete at the 2/7 low of 1.4438. Expectations are for a bullish breakout that in the coming weeks that completes wave 5 within the 5 wave advance from 1.3261.

The drop from 1.4757 was in 3 waves and price continues to hold above an unorthodox trendline. There is the possibility that a rally through 1.4757 would complete 5 waves up from 1.4438 and give way to another correction. However, it is also possible that the EURUSD is subdividing higher in a larger 3rd wave. With this in mind, the best strategy is to keep moving the stop up.

STRATEGY: Bullish, against 1.4609, target mid 1.50s

USD/JPY

Longer term, we maintain that a 12 year triangle ended at 124.13 in June 2007 and that the USDJPY is headed lower for a test of its 1995 low at 81.12. Since 124.13, the USDJPY has traced out a series of 1st and 2nd waves. The decline should accelerate in the next month or so in wave 3 of 3. This forecast remains intact as long as price is below 114.65. Resistance should be strong near 110.00 (Fibo and congestion).

We maintain that the USDJPY is still working higher, possibly towards 110.00 (Fibo and congestion). The drop from the 2/14 top was just in 3 waves, which supports the idea that the rally from 104.97 is not yet complete. Keep risk at 107.21. If 107.21 is given, then look for support near 106.81 (78.6%) in order to get long against 106.32.

STRATEGY: Bullish, against 107.21, target TBD

GBP/USD

For the first time in months, the GBPUSD daily count is clear. The pair has declined in 5 waves from 2.1160, indicating that a significant top is in place. The 5 wave decline is viewed as either wave 1 in a 5 wave bear cycle or wave A in a 3 wave bear cycle. In other words, longer term bearish potential is great. The rally underway now is either wave 2 or B and we will look for a top in the 2.0033-2.0463 zone. This corrective rally probably lasts for weeks if not most of this month. Also, the GBPUSD rallied for 5 consecutive days ending Thursday. A string of consecutive days usually occurs in the beginning or middle of a strong rally. In this case, it is likely the beginning of wave C.

Cable is certainly testing our nerve as bulls. Still, our line in the sand is 1.9386. The drop from 1.9736 to 1.9409 is best counted right now as a complex double zigzag. Within the second zigzag, wave b is an expanding triangle (which is extremely rare). We are looking for price to turn up more or less now.

STRATEGY: Bullish, against 1.9386, target above 1.9957

USD/CHF

A corrective 4th wave rally may be underway now within the 5 wave decline from the October 2006 high at 1.2768. The USDCHF will likely trade in a choppy manner for the next month or so, but with an upside bias before a decline in a 5th wave completes the entire decline from the October 2006 high and gives way to a multi-year low.

Luckily, we have refrained from taking a strong stand on the USDCHF lately. The pair has traded in a diabolical fashion, spiking in both directions. Given our bullish stance on the EURUSD (which exhibits a much clearer pattern), it seems wise to lean towards the bear side regarding the USDCHF. If you wish to trade the USDCHF from the short side, then keep risk to 1.1045. (see yesterday’s technical report for the bullish count)

USD/CAD

The pattern in the USDCAD since the November low at .9055 is either an A-B-C rally that will lead to a new low (under .9055) or a 1-2 (expanded flat) base that will lead to a strong rally to new highs (suggesting that a multi-year USDCAD low is in place). Either way, price will come below .9755. Potential support from Fibonacci is at .9652 and .9511.

We wrote yesterday that "the rally from .9871 could reverse near the 61.8% at 1.0184 or the 78.6% at 1.0269. One reason that we are confident in the bearish case against 1.0378 is that the rally from .9871 to 1.0124 was in 3 waves, which is countertrend." The reversal occurred at 1.0197 and it is probable that the USDCAD downtrend is back underway.

STRATEGY: Bearish, against 1.0378, target below .9755

AUD/USD

As long as the AUDUSD rallies in 5 waves and declines in 3 waves, there is no reason to adopt a bearish outlook. The rally from .8512 is expected to exceed .9400 in the coming weeks. Objectives are near 1.00.

At first glance, the AUDUSD decline from .9236 to .9111 looks like an impulse. However, a closer look reveals that the drop is in 7 waves -- which is a correction (zigzag). As such, the trend remain up and risk can be moved to .9111. There is no change to the call for a rally to reach the mid .90s, and maybe even 1.00.

STRATEGY: Bullish, against .9111, target TBD

NZD/USD

The drop on 1/22 to .7383 completed a large correction that had been underway since November. Like the AUDUSD, the NZDUSD trend remains up and an upside breakout will probably lead to a test of the July 2007 high at .8108.

We wrote yesterday that "the count that we have presented above treats the rally from .7781 to .7927 as wave 1 in a 5 wave advance. The drop today presents an opportunity to get long against .7841." The most bullish count places the NZDUSD as ready to break out from a series of 1st and 2nd waves. There are no finite targets yet.

STRATEGY: Bullish, against .7902, target TBD

DailyFX

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