SO What Is Cable Up To?

I had been tweeting all morning that there is a 4th bearish wave failure on the daily chart of the GBP/USD. So let me correct myself with the above chart.

There are actually 2 consecutive bearish waves on this chart. I count waves according to The Quarters Theory. As such what has developed in the trading session today is a failure of a 3RD bearish wave. This 3rd bearish wave that started after cable corrected with a high of 1.5764 on February 10, 2009 failed as it made a higher low during London today at 1.5557. This failure resulted in a rally to the high so far today at 1.5717.

Also, keep in mind that the GBP/USD is the laggard to the EUR/USD which has already staged a failure of its 4th bearish wave on its daily chart. And, again, despite the fundamentals, the EUR/USD has not made new lows below the February 5th low at 1.3584. Rather, the EUR/USD made a higher low at 1.3594 and corrected to a high today at 1.3694. These bearish wave failures signal a reversal of the current downtrend to the upside. On the other hand, the GBP/USD has corrected just enough off the recent lows at 1.5531 with the current consolidation only retracing between 38.2% - 50% (check out the above daily chart). That is certainly a healthy retracement that supports the pair continuing on in the current ST downtrend.

What to Expect From Here?

I expect a nice correction off the highs after an impressive rally by the GBP/USD. No doubt it was helped by the insane slide in the EUR/GBP as the European Union is in a whirlwind of uncertainity. I do expect a rally to complete the quarter to 1.5750. But after that target is hit, it is time to watch price to determine what cable does at these levels. To the upside lie a number of resistance levels: 1.5764, yesterday’s high; 1.5774, the high on February 5; and then 1.5800, the 50% Fib. If price breaks above these levels with confirmation, then price can continue to rally back towards the 1.6000 large quarter point and major psychological level. To the downside, if price remains below 1.5750 even after a break of that level, look for a return to 1.5560 support and a possible break down to 1.5500.

The calendar tomorrow could certainly provide the catalyst needed to break these very stubborn support and resistance levels. US retail sales and consumer confidence will be closely watched for both the absolute numbers and any possible drag (or lift) on GDP. With all the craziness in the Eurozone this week, watch EZ GDP and IP. Its effect on the GBP/USD could come through flows on the EUR/GBP.

Trade what you see folks, not what I think!