GBP/USD – 1.3210
Despite falling to 1.3070 late last week, lack of follow through selling on break of previous support at 1.3088 and the subsequent rebound suggest the decline from 1.3658 top is not ready to resume yet, hence further consolidation would take place and recovery to 1.3279-87 resistance cannot be ruled out, however, resistance at 1.3338 should hold from here. Only a break of 1.3338 would signal another leg of rebound from 1.3027 is underway for further subsequent gain to 1.3400 and possibly towards resistance at 1.3455. Having said that, if our view that top has been formed at 1.3658 is correct, upside would be limited to 1.3500-10 and bring another decline later.
Our preferred count on the daily chart is that cable’s rebound from 1.3500 (wave (A) trough) is unfolding as a wave (B) with A ended at 1.7043, followed by triangle wave B and wave C as well as wave (B) has possibly ended at 1.7192, below support at 1.4232 would add credence to this count, then further fall to 1.4000 level would follow but reckon downside would be limited to 1.3655 support and price should stay above previous support at 1.3500.
On the downside, whilst pullback to 1.3150 cannot be ruled out, reckon 1.3100-10 would limit downside and bring another rebound later. Only a drop below said support at 1.3070 would revive bearishness and signal early rebound from 1.3027 has ended at 1.3338, bring retest of this level. Looking ahead, a drop below 1.3027 would confirm the fall from 1.3658 top has resumed for weakness to 1.3000, then towards 1.2950 but support at 1.2909 should limit downside and another previous support at 1.2852 would remain intact.
Recommendation: Short entered at 1.3300 stopped profit at 1.3250 and would stand aside for this week.
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 (A) ended at 1.3500 (23 Jan 2009), wave (B) itself is labeled as A: 1.6733, triangle wave B: 1.4813 and wave C as well as top of wave (B) ended at 1.7192 (2014), hence the selloff from there is an impulsive wave (C) with wave I : 1.4566, wave II 1.5930, an extended wave III is unfolding and already exceeded our downside target at 1.3500 and 1.3000, hence weakness to 1.2500 and possibly 1.2000 cannot be ruled out, however, price should stay well above psychological level at 1.0000.