GBP/USD – 1.5363

GBP/USD – Wave i of 5 ended at 1.4228 and wave ii of 5 should be limited to 1.6455/60.

The British pound fell to as low as 1.5327 (just 2 ticks higher of our indicated downside target of 1.5325) before recovering to 1.5492 (just within 10 points of our lowered stop at 1.5500), however, as price has slipped again after meeting renewed selling there, retaining our bearishness for decline from 1.5999 top to resume after consolidation and bring weakness to 1.5322 (38.2% Fibonacci retracement of 1.4228 to 1.5999) and possibly to previous resistance at 1.5241. Having said that, reckon downside would be limited to 1.5114-25 (50% Fibonacci retracement and previous support) and psychological support at 1.5000 should remain intact.

Our preferred count on the daily chart is that the major decline from 2.1162 top (9 Nov, 2007) is a 5-waver with wave 1: 1.9337, 2: 2.0399, extended wave 3 has ended at 1.3500 and wave 4 is unfolding with A: 1.4986, B: 1.3655 and impulsive wave C is sub-divided into (i): 1.5068, (ii): 1.4398, (iii): 1.7044 (instead of 1.6745), (iv): 1.5708 and wave (v) has ended at 1.6879 as a failed 5th. The decline from there is the beginning of wave 5 and wave i of 5 has ended at 1.4228 as wave I of 5 and wave ii of 5 has possibly ended at 1.5999.

On the upside, as long as resistance at 1.5490/92 holds, bearishness remains for such a decline. A daily close above this resistance would prolong consolidation and risk another bounce to 1.5577 but break of 1.5599 resistance is needed to bring stronger rebound to 1.5620 and possibly 1.5689 but price should falter below 1.5800 and bring selloff later this month.

Recommendation: Hold short entered at 1.5550 for 1.5300 with stop at 1.5500

Longer term - Cable's rise from 1.0520 (Feb 1985) to 2.0100 (September 1992) is seen as [A], the decline to 1.3682 is labeled as (B) and (C) wave rally has ended at 2.1162 (9 Nov, 2007) which is also the top of larger degree wave B with circle. The selloff from there is a 5-waver with wave i of 5 ended at 1.4228 and wave ii should falter below 1.6500 and bring another decline. Below 1.4228 would extend weakness to 1.3800 and break of support at 1.3500 (23 Jan 2009) would bring further fall to 1.3300, however, price should stay well above psychological support level at 1.3000.