EUR/GBP, Cable…Just The Beginning….by D Solin

In the Apr 18th email on eur/gbp, warned of the month long rising wedge, a topping pattern that resolves sharply lower. Took profits on the early March long at .7675 there (then at .7975 for a 300 tick profit), and reversed to the short side. Though the market chopped higher for a few days, it has since tumbled and today breaking below the base of the wedge (currently at .7930/50, see daily chart below). In the Apr 18th email on eur/gbp, warned of the month long rising wedge, a topping pattern that resolves sharply lower. Took profits on the early March long at .7675 there (then at .7975 for a 300 tick profit), and reversed to the short side. Though the market chopped higher for a few days, it has since tumbled and today breaking below the base of the wedge (currently at .7930/50, see daily chart below). Note too that the market may have completed the whole 5 wave rally from the July 2007 low at .6680 and raises potential for at least another few months of correcting toward .7560 and even .7390 (50% retracement from the .6680 low) ahead. Also, the daily macd has just given a new sell signal, also suggesting further downside. For now, want to stay short but there is some risk for near term volatility as part of this larger topping (would be looking to add if not fully positioned on any near term sharp upmoves), so initially would use a wide stop on a close above .8020/30. Key resistance before there is at the broken base of the wedge (currently at .7930/50, with a retest as resistance quite common). Nearby support is seen at .7880 and .7825.

In the Apr 15th email on cable, warned of the falling wedge that had been forming since March (a pattern that resolves sharply higher and opposite of the rising wedge in eur/gbp above). With the market then near the base, got long (then at 1.6030) for an upside resolution of the ceiling, and potentially sharp gains back to the March high at 2.0395 (also said that a break down in eur/gbp would likely be the main driver). The market surged soon after, yesterday taking out the ceiling and running into resistance at 2.0000 (50% retracement from the 2.0.95 high). Though this resistance area may hold for a few days, it would be seen as a correction and with a resumption of the sharp gains favored after. Note too that the last few days of gains also occurred in 5 waves (see shorter term analysis/ chart at www.fxa.com/solin/comments.htm , email me for a password) adding weight to the view that the bigger picture upside is not yet “complete”. Nearby support is now at the broken ceiling of the wedge (currently at 1.9825).

David Solin
Partner, Foreign Exchange Analytics

Foreign Exchange Analytics has it's roots in both the emerging information technologies and the global economy that characterized the last two decades.  As currency transaction volumes soared in the wake of the 1985 Plaza accord, the need for timely concise information on what forces were driving and would drive exchange rates became critical.   David Gilmore was one of a new breed of analyst that saw a void of relevant, market moving... More