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Last week, we focused on long EURJPY, AUDJPY, and CADJPY. A setback is expected, at least to 157.30 EURJPY. We exited the AUDJPY yesterday but still like CADJPY as long as price is above 106.86. A setback is expected in GBPJPY (similar to EURJPY). The GBPCHF break yesterday was false but a new high is expected (above 2.1841).
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Sentiment measures, including COT data favors GBPJPY strength. Both legs of the cross (GBPUSD and USDJPY) show bullish patterns as well. Cable is expected to reach the 2.01/04 zone in the next month while the USDJPY is expected to test at least 108.50. This fits with the idea that a larger GBPJPY advance is underway from 204.61. Potential resistance begins at 217.47 (former congestion and 50% of 230.33-204.61).
We wrote yesterday “we know that a portion of the rally from 206.79 to 213.87 will be retraced. Support begins at the 38.2% at 211.16. We will try and re-enter in this area.” After thinking it over, it is possible that a triangle is unfolding in the GBPJPY. If this is what is going on, then price will come a bit lower in wave D before rallying in wave E. The best play in this case would be to play a triangle breakout to the downside. We’ll keep you posted.
The longer term wave count for the GBPCHF is not extremely clear but what is clear is that the decline has stopped at long term support and that the GBPCHF has spent the better part of 2008 forming a base -- presumably from which to work higher.
We wrote yesterday that “we subjectively favor a larger rally but probably not before a dip into the 2.1476/2.1546 zone (Fibonacci zone).” The GBPCHF decline extended further than we thought it would but may have formed an important low at 2.1356. This is a good chance to trade bullish against 2.1251.
Strategy: Bullish (looking to add close to 2.1476), against 2.1251, target TBD
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