I don’t know what the fundamental people are saying about Cable (GBPUSD) right now but on the chart I see a rally set for this pair.
Since the beginning of the year, Cable has been in a steady downtrend from a high on January 19, 2010 of 1.6450. The quick sharp 300 pip drop on March 1 seemed to be an exhaustion of that downward trend. If there was fundamental or sentiment merit in that 300 pip drop, Cable would have continued a downward motion. Instead, the drop on March 1 created the first support of a solid base the pair has been building over the last two weeks. When Cable tried to test that support, it retraced a near perfect Fibonacci 88.6% on March 10 before rallying once more.
So where next for Cable?
Obviously I’m building a bullish case for Cable. I see a Wave 3 forming, which should exceed the size of Wave 1 and therefore an opportunity to buy on dips. It is sitting at a key resistance at the time of writing so be cautious to jump in now. It could easily retrace and begin a range. But there is a strong support below to plan long trades from. The 61.8% extension of Wave 1 from the bottom of Wave 2 gives a target of 1.5460; this is also close to the 38.2% retracement of the larger trend X-Y. Be prepared to let your profits run on this as there are key Fibonacci points ahead at 1.5830.
Chart notes:
o Wave 2: 88.6% retracement of Wave 1 (or an 88.6% retracement from point Y to Point 1)
o Red Fibonacci lines: Wave 1 extension from bottom of Wave 2 (In Elliott Wave, Wave 3 is commonly is an extension of Wave 1)
o Blue Fibonacci lines: Retracement levels of X-Y.
o Look in particular to see where Fibonacci lines meet
H. Hamid
