GBPJPY—corrective rally

The low of 129.93 yesterday equaled a .63 percent retracement of the move from 126.44 to 134.23. Assuming this is an ABC correction on the daily chart, the C leg currently underway could reach 134.17 if C equals .618A. That's near price resistance as well as the current 200 day SMA. It's also near the November high of 134.22 and near the upper line of a downward sloping channel on the weekly chart. As a result, I'd expect to see good resistance there and I'd try a short. The pair's average true range is around 137 pips (low compared to historic levels) so this should happen over the next few days if it's going to happen.

On an hourly basis, one can also see a potential ABC correction with the C leg in progress and possible targets up to 131.75. Just above this is the uptrend line from October lows at 131.90 as well as resistance from a weekly EMA and a daily 10 and 20 SMA. In addition, the 50% retracement of the move down from 134.23 to 129.36 is at 131.80. All this is significant resistance so obviously if the pair is going to achieve the 134.17/35 range, it has to first close neatly above this level. If one shorts here, the stop needs to be over 132.00—not too bad for the potential gain down to 119/120.

Here's the weekly chart:










© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

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