GBP/USD – 1.5804

GBP/USD – Wave i of 5 ended at 1.4228 and wave ii of 5 has possibly ended at 1.6747.

Last week’s rise to 1.5884 adds credence to our view that low has been formed at 1.5234 earlier last month and indicated upside target at 1.5810 consolidation with upside bias remains for further gain to 1.5810-15 (61.8% Fibonacci retracement of 1.6167-1.5234) and previous support at 1.5869 had been met, bullishness remains for this move to bring a stronger retracement of recent decline to 1.5990-95 (50% Fibonacci retracement of 1.6747-1.5234), however, price should falter well below resistance at 1.6167, bring another decline in later part of Q1.

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 ended at 1.6747 and wave iii is underway for further weakness towards psychological support at 1.5000.

On the downside, whilst pullback to 1.5700-10 cannot be ruled out, renewed buying interest should emerge around 1.5600 and bring another rally later. Only a daily close below support at 1.5531 would signal first leg of corrective rise has ended and risk weakness to 1.5450 and possibly to 1.5400, however, as low has been formed at 1.5234, downside should be limited to 1.5350 and bring another strong rebound later.

Recommendation: Buy at 1.5600 for 1.5850 with stop below 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.