Elliott Wave Analysis of GBP/JPY

06/23/2010 12:01 am EST

Focus: FOREX

The British pound has remained confined within a narrow range throughout the past two weeks, and further consolidation is in store. However, as the move from 126.80 is still treated as correction, as long as resistance at 136.40 holds, our bearishness remains for weakness to 130.40/50. Still, a daily close below there is needed to confirm that the correction from 126.80 has ended at 136.40, and if not, weakness to 129.00 would follow. Looking ahead, a break of said support at 126.80 is needed to signal the wave (iii) is still in progress for weakness to 125.00 and then 124.60 (100% projection of wave (i), however, we reckon that 120.84 (1.236 times projection) would hold from here.

Our preferred count is that the larger-degree wave (V) with circle is unfolding from 251.12 with wave (I) 219.34, (II) 241.38, and wave (III) is subdivided into 1: 192.60, 2: 215.89 (23 Jul 2008), and wave 3 ended at 118.87 earlier in 2009. The correction from there to 162.60 is wave 4, which itself is a double three and is labeled as first a-b-c ended at 151.53, followed by wave x at 139.03, second a ended at 162.60, second b at 146.75 and second c leg of wave 4 ended at 163.00. Therefore, the decline from 163.00 is the beginning of wave 5 with minor wave i of 5 ended at 132.05, followed by wave ii, which has ended at 145.95. Hence wave iii is unfolding with minor (i) ended at 130.00, (ii) at 140.55, and wave (iii) is in progress for a further fall to aforementioned downside targets.

On the upside, only a move above the 136.40 resistance would signal that a temporary low has been formed and risk stronger rebound to 138.00 before prospect of another selloff.

Recommendation: Sell toward 134.50 for 130.50 with stop above 136.50.

Click to Enlarge

The long-term downtrend from 570.99 (29 Feb 1980) is labeled as an impulsive wave with III with circle ended at 129.77 (20 Apr 1995) and the corrective rebound to 251.12 (20 Jul 2007) is treated as wave IV with circle and the wave V with circle selloff from 251.12 is still unfolding and will bring another test of 118.87 low, possibly in Q4, however, further steep fall below there is unlikely and 115.00 shall contain downside.

Click to Enlarge

By the Staff at ActionForex.com