GBP not yet ready to drop

[Mercury]

Yeah it is good to keep all scenarios in sight so long as it doesn't cloak you in doubt when actually trading.  In the end it is about likelihood assessment on each scenario and it is a little more than just a coin toss on up or down...  This is why I like to cross reference related markets for signals.

[donaldprice]

Absolutely, don't disagree, hence why I always scrutinise everything on a chart, but what I like about having an alternative W-count is that it gives you a different scenario in-case your original does not work. One such thing I did notice, although I will confess those autochartist did spot it first, not that I pay much attention to them, have however pointed out a possible H&S formation. Therefore this could be a short-term decrease, break of neck line would confirm this, therefore no going long or adding to positions at present.



[Mercury]

Possibly, although the current move up may not yet be complete and if it makes a new higher high then that perpetuates the series of higher highs and higher lows so far.

 

Also, as a general rule, I only consider H&S formations on larger time frames (Weekly and Daily) and they must have a decent period of time elapsed across the formation (think in terms of months).  If you look at an hourly chart you can make out H&S all over the place but does it really signify?  I prefer other signals on hourly charts such as geometric patterns, support/resistance and EWT.

 

For this market I am content with Longs taken on the turn and will all the market to unfold (stop me out possibly but hopefully fulfill its retrace potential).  I am not much minded to trade the intervening mini waves on a retrace move as it is always liable to the potential for sharp and costly cut backs, especially this market at this time.  Having said that is a strong rally potential does present itself...

[Mercury]

Sorry  I meant to attach the chart on the last post, here it is now and I think it shows an up trend rather than a reversal signal, a la a H&S formation.

 



[donaldprice]

Cheers Mercury, for the chart. I will admit that although that 15m H&S formation appeared to be present yesterday, as I said did raise eyebrows for me, hence why I would stop and await for that alternative w-count to be invalidated, which it was therefore original count still in play. I am keeping a close eye now on the 61% fib (Red fib line) in case we see some retracement, however I suspect this will continue towards the 13900 level possibly 14100, which therefore we would continue to see, I presume for continued declines in the $ pairs. Be interesting to hear Mark Carney today at the select committee and Jacob Rees Mog will also appear, which is always good for a laugh, no doubt he has plenty to say to him over his QE program.



[Mercury]

I think we will need to track this closely  as there are several decent chance terminations points, not least within the congestion zone around the Brexit price gap (13500-650).  The top of this gap also coincides with very long term support at the Monthly Fib 23% (now resistance after the Brexit break) and a Fib 38% off the Brexit day High.  That constitutes a lot of resistance in my book so if it looks like a solid 1-5 wave C by then with other signals I would be thinking about cashing my Longs and seeking Shorts

 

BUT, as you say, there is a case for as high as 13900 (Fib 50%) I think, will just have to watch and decide later.

 



[donaldprice]

Hi Mercury, as you say, this does require a close eye, however not convinced we have finished, the potential retrace occurred on the 61% from the previous beginning of the daily W4 of W1 of 3. Therefore the 38% of the beginning of W3 is what I would look out for which also coincides with my channel T-line. Of course price action will dictate the terms, but we may have completed W3 of C so far. If you have a different opinion, by all means share it.

 

[Mercury]

I think similarly .  I have my tentative EWT count slightly differently placed but that doesn't matter much on the small time frames such as 1 hour chart.  We are heading to roughly the same destination with our respective analysis the only issues are to guard against a sudden reversal and to consider where this move will top out.  As said before I am more confident about the 600 area than the 900 area, hence the need to watch the evolution of the move.  I would not trust too much to tramlines on such a retrace move, they work better on motives.  Fib levels and Resistance zones are our friends here.  You have to chose the right tool for the circumstances in my experience.

[donaldprice]

Hi Mercury, I do believe the main bears will be sitting in the tall grass for now, but if anybody tries to argue is because of Brexit or any other economic factor, they using the excuse for their own political ends. The DX will be without doubt the dominating factor here. However in terms of the technical, I don't think I would rule out further gains just yet, however be interesting to see this afternoons US figures to see what momentum this adds.

[donaldprice]

With cable this will be interesting to see if we reject W2 or 0.618% retracement and head higher. But if that is the case, then expect W5 to terminate around 13600 level. The only issue I have is that W3 seems to short. But, if it terminates at 13600, then W3 would not be classed as the shortest, rather W5 would be.



 

[Mercury]

Like the thinking  but this move illustrates the difficulty of using EWT to make trading decision in low time frame charts.  I do use EWT but don't trust it alone without other more reliable signals.

 

If you look at my chart below you will see an alternative, and perfectly valid (so far) EWT count, which negates your valid concern about the wave 3 length.  In short if you put the 1-2 in earlier then the current move is the wave 3 and the current retrace is a possible flag formation, which I have found we very often get in motive waves and tends to mark the half way point in the move.

 

If this proves true then a break of the upper flag line is a good Long opportunity and the move should head through the 600 and on towards 900.  It may be that wave 3 terminates around the 600 mark.  FWIW COT data shows a small edging to the Long side over the past 2 weeks, albeit not material it may indicate the beginning of a swing back in the herd from the post Brexit ultra bearishness.  I believe this is necessary to bring about the final run down and a strong rally form here would certainly produce that so this is all fitting nicely into my long term road map.

 

Also FWIW, I suspect we will see a contrarian EURUSD rally soon too...

 

While all this offers some interesting short term trading the real opportunity lies in catching Shorts on the turn.

 



[Mercury]

Technical analysis methods are all very well but when the market bowls you a googly (cricket term for those unfamiliar with the game) then you have to reassess.  Today's GBPUSD move shows the difficulty of using EWT on small time frame charts  and now I have a new count that still points to a conclusion of an A-B-C but more strongly shows for a 13,600 conclusion.  I will be looking for a rally off the Fib 50% area, a close below calls this set up into question because of the W1/W4 overlap.

 



[Mercury]

I have remained resolutely short term bullish on GBPUSD since the post Brexit low despite much talk of a rapid descent to parity and beyond.  for the record I share that view long term but I feel this piir must complete a retrace back to the price gap on Brexit day before the charge lower begins in earnest.  It has been a long road and an exercise in patience and tight money management as the market whip-lashed around in a tight range and this often signals a so-called complex retracement to me.  I have an EWT count that supports this position (grey A-B-Cs) and suggests a final rally from here to the conclusion.  If we get a confirmed break back up through the first set of parallel trams (pink) I would be confident in holding Longs to 13600 at least.

 



[donaldprice]

I have had some really serious doubts earlier this week, most notably when what appeared that W3 had concluded and now seeing such a sharp turn down which looked like a repeated ABC down . The potential W3 just looked really poor to me as it infact was smaller than W1 and therefore W5 would have to be the shortest, which for now given the fundamentals it simply does not add up anymore for me, unless I am missing something? This therefore looks to me as if we are in a type of contracting triangle. For now it does appear that we would have to see how it would react to the 0.786% retrace level and see if we have a nice bounce, if it does then this may confirm my triangle analysis and therefore may be heading lower thereafter. If anybody has a different view please share.



[Mercury]

I agree , if I am following you correctly.  I picked this theme up mid last week and made a post on GBP/AUD/USD Triad supporting a complex retrace Triangle set up, which I now set out below just for this pair (do check out the Triad analysis as I believe it supports a potential rally on GBPUSD, unless the Fed raises rates on Wednesday next of course).

 

On my daily chart you can see the complex retrace pattern being played out (grey labels) with one final A-B-C to come, of which I believe the current move down is the wave B.  There is also a classic contracting or coiling Triangle set up in A-E form so it is possible that the rally will end at point E (pink label) but I still favour a return to the post Brexit gap and major long term support/resistance zone (this is the same zone).  The form of any rally around FOMC could help us decide between these two set ups.

 

I suspect the Fed will bottle it on the rate rise this month and if the market strongly agrees it may start to rally before the FOMC announcement so we will need to watch for that early next week.  Alternatively, and more likely, the market may stumble about the support zone around the lower Triangle until the FOMC announcement, in which case I would be placing stop-in trades either way around the announcement time.  It is my belief that this time there is only one issue (rate rise or not) that will move the market so I do not expect the usual up/down vacillation as the algos digest the minutiae of the statement but rather a firm and strong move either way depending on the rate rise decision.

 

I think this is true of all other USD FX pairs and Gold/Silver and probably stock indices too so it could be a very big week.  If we get a rate rise then I think Stock Indices and bonds will tank and that would mean the top of the US large Caps is already in.  USD will rally hard and Gold/Silver will initially tank and then recover as the Stock/Bonds rout begins.  However if we get no action by the Fed then the reverse will hold but not for long as the market realises the real fear is not a rate rise but the fact that the economy and corporate performance and the precarious bond market situation needs ultra low rates and QE forever to support it.  This amounts to a realisation that the markets are unsustainable at current levels and then the Bear will begin.

 

But let's not get over excited about this.  Once the Bear begins it will evolve slowly at first.  I would expect to see an initial EWT1-2 down and back up before the real drop begins and even then it will take some time before we hit the major crash phase that will make MSM headlines.  This could be 6-9 months away still, although given where we are I would imagine a sharper fall that the previous ones (2000 & 2007) as those were only retraces and this time it will be a full reversal...  Anyway the point is markets down't move in straight lines and while I would want to catch the turn and fall I am not expecting an express elevator to ****...

 

 

 

 

[Mercury]

Sorry forgot to attach the charts on the past post, here they are:

 



[donaldprice]

HI Mercury, cheers for the reply. I was mostly disagreeing with my own analysis rather than yours although, to be fair we have now ended up changing our analysis for the best. I agree that the FED will not raise rates as growth is still stagnant both outside and inside the US. I think a few currency pairs on now on the edge for their own retracements soon such as USD CAD, EUR AND GBP. This is why it will be crucial early next week to closely observe these changes. I think their is largely going to be some strong expectation of no rate hike, but during these FOMC annoucements often it will shoot the opposite way before going in the right direction. For me their is always a risk, hence why i like to sit on my hands for these type of events.

I am due to look at some more charts later on in the day, so i will comment on some of the postings you put over the weekend as their are some interesting points to discuss.

[Mercury]

I hope you are right  although if not then the best way I have found to trade these situations is stop-in trades at strategic breakout points going either way as we cannot in truth be certain which way it will go with the FOMC.  There is a risk of whiplash with this approach but in this case I feel that we won't see too much of that (at least if you are not a day trader that is).  I would not seek to place a trade prior to FOMC unless I saw a clear signals that a pre FOMC rally was beginning, using my usual signals and method.  As you say close watching in the run up to FOMC will be required on this. 

 

All things being equal and outwith an aberrant Fed decision to raise rates I agree that may markets are at critical potential turning points OR breakout points (if the Fed does raise rates).  My long term analysis (posted elsewhere on the forum) has USD pairs with EUR, GBP, CAD approaching such points.  I believe USDJPY already has but I am uncertain on AUDUSD.  I think Stocks will rally on no Fed action for another leg up in the case of US large caps and Gold/Silver will also rally.  However it will all be short lived and set up the eventual huge short scenario, which will come soon I feel.

 

Good luck...

[Mercury]

I really thought we would see a strong rally after a no rate rise by the Fed but we didn't.  In truth I was a little wary because the market had not descended to the lower Triangle line but it has now...  Not only that but it bounced right back off it and although it didn't follow through on Friday if it does on Monday them a Long on the Triangle was a good bet as is any Long during the early stages of such a rally.  COT data turned sharply bullish the GBP last week too, having being at record levels of bearishness and the overall tehcnical set up screams rally back towards the post Brexit Gap to me.

 

This also fits with other Triad set ups where GBPAUD also looks set of a strong rally and AUDUSD looks soft.

 



[donaldprice]

You and me both on this one. I regrettably got in the middle of W5 on this one on friday but looking back it was well deserved for me and a small loss for a good lesson lol. Moving on of course. This looks to me like a nice high confident trade set up with this one. It is once again a clear zigzag trade with the evidence suggesting that W-C is 1.618 times length of W-A which funny enough brings you exactly 12918. This level also bounced of a 0.886% fib level from the W2 of A than began on the 11th July. 



[Mercury]

The GBP bears are certainly not going quietly but GBPUSD may have just bounced off an EWT 1-2 retrace and Fib 62%.  After the previous bounce off the Daily Triangle line this was to be expected and although a slightly lower low, even another touch on the Triangle could still occur this looks like a decent rally of the 62% Fib.  A break of the upper resistance zone would confirm the move for me and after than we should see a fairly fast wave 3 up.

 



[donaldprice]

It definitely appears that the bears have not been as aggressive at present. But as long as we dont retest the previous low on the triangle as C, then we have a chance to head higher.

 

[donaldprice]

[Mercury]

Strong bounce up off the Daily lower Triangle line in EWT1-2?

 



[donaldprice]

I think i might just wait to see if what the results of the economic data are at 0930, hopefully we will see the bounce, a break of the T-line in my previous thread would confirm this bullish uptrend.

[Mercury]

Fair enough .  For me the hit and bounce on the Triangle was enough with a tight stop but breaks of higher resistance zones are also good.  Perhaps a stop in order at a strategic breakout point in anticipation of a push from GDP data release? 

[donaldprice]

I never thought I would here myself saying this, but for the first time I am slightly worried on the conservative party conference. The pound in general across its pairs have seen particular sensitivity to political statements from key brexiteers.  However on the upside we could see some very key fiscal infrastructures pledges coming from the conference of which could hopefully be translated into the autumn statement. This is why House builders, especially some of the key household names should perform very well this year and the next.

But sticking with cable, this will be experiencing continued pressure regardless of what is said. But from the present wave count we have the following.

Right now I prefer the original W count which is W4 of W3 of which W4 is a triangle and W5 of W3 could terminate around the 127 which is a Fib level on the monthly of 78.6%. Overall the aim would be to see this head towards 103 level.

But for the short term their is definitely signs that the bulls are coming in and pushing the price action against the current channel that I have and 12935 seems to be a very strong support. The momentum also suggests that sellers have taken a break and bulls may be sniffing a tempory opportunity. Confirmation of this trend change towards W-E would be more confirmed at a break of the channel. A very similar pattern is occurring of € £, except the difference is that we have exited the channel but currently/possibly coming up for a kiss before heading lower.

However their is also the possibility and some could very well argue that we have already ended our retrace, and therefore could already be heading lower, of which in that case the WXY count would have been validated.

 

Let me know if anybody has similar thoughts or anything different.



[donaldprice]

1985 lows. Fundamentally passporting rights and the financial sector clearly not impressed with the government, and can you blame them. Interesting on the chart that my alternate W count seems to be in play. However I have also noted that if you look on the monthly chart we are approaching a 78.6% fib level, which we could see an ABC retrace before resuming lower, although their are some 300,000 short contracts are on, markets don't go in one direction, unless a crash of course. Correlation between FTSE100 and GBP seems to be more heavily related now than ever before.



[Mercury]

I've got the 1-5 down option as well , I'm not sure where the Fib 76% comes from.  The natural inclination is to assume the fresh lower low is a breakout signal for a Short, and it could be (possible with a retest of the support/resistance zone) BUT the 1-5 move down and the fact that a clear A-B-C retrace of the Brexit day move hasn't really presented also allows for the current drop being the final move in the whole post Brexit drop, after which a rally ensues (red labels).

 

In addition I have a daily chart parallel tramline pair (blue) so for me the real acid test here is the lower tramline (will it hold support of show a break out.  The latter starts a drop towards parity for me the former a likely retest of the recent support zone break, which is not held offers the possibility of a decent retrace rally.

 

All in all I would be careful with this one until things clarify.

 



[donaldprice]

Hi Mercury below is the 78.6% fib level I was talking about. I would not like to say this strong move down caught by surprise, but when I saw the tory conference over the weekend and Theresa was discussing article 50 and then seeing the COT data's number of short contracts then I started to think of the alternative w-count. But regardless I think the trigger of the retrace could very well be non-farm payrolls number. But regardless of the cause the technical suggest an ABC retrace. The 78.6% fib is from W-A of 1985 by the way.