GBP/USD – 1.2955
Despite falling to 1.2774 (exactly 38.2% Fibonacci retracement of 1.1986-1.3269), the subsequent stronger-than-expected rebound suggests first leg of decline from 1.3269 has ended there and consolidation with initial upside bias would be seen for further gain to 1.3020-25 (50% Fibonacci retracement of 1.3269-1.2774), however, reckon upside would be limited to 1.3080 (61.8% Fibonacci retracement) and price should falter below 1.3165, bring another decline in late Q3.
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 initial pullback to 1.2900-10 and possibly 1.2870-75 is likely, if our view that a temporary low formed at 1.2774 is correct, downside should be limited to 1.2810-20 and bring another rebound later to aforesaid upside target. Below 1.2800 would risk test of 1.2774, however, break there is needed to extend the fall from 1.3269 top to 1.2700 and later towards 1.2620-30 (50% Fibonacci retracement), however, price should stay well above previous chart support at 1.2589, bring rebound later.
Recommendation: Exit short entered at 1.2910 and 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.