Sterling Pivots at the False Breakout Extreme - Bulls Alerted

FX:GBPUSD   British Pound / U.S. Dollar
We've written about the GBP/USD             a couple of times over the past month or so anticipating a wave 'B' bottom. This week, Sterling pivoted at the point where wave 'B' could be a false break down. This pattern we're favoring is the expanded flat pattern that began on March 18 2015.

Wave A is a double (flat-x-zigzag) that terminated on June 17, 2015.

Wave B as labeled is a triple (flat-x-zigzag-flat) that appears to have terminated on Jan 21.

That suggests wave C would subdivide as 5 waves higher towards 1.54 and possibly 1.60.

This is the favored count, but not the only count. There are other possibilities so don't mistaken this to believe prices ONLY have to go higher, because they don't. If prices fall below this week's low, we'll reconsider the counts/patterns.

A meaningful move above 1.45 would punch through significant resistance that could be symptomatic of the bullish undertones.

We touched on these bullish undertones for Sterling in yesterday's GBP/JPY             post. So this appears to be somewhat broad based at least in the shorter term. Longer term, we are looking for Sterling to be much weaker.

In the chart above, note how SSI             was shrinking as the pair was falling out of bed in January. This shift in sentiment during a strong trend is another symptom of prices searching for a bottom.

I would encourage you to check out the live SSI             feed so you can keep an eye on shifting sentiment.

Lastly, the equity market sell off has market expectations for future rate hikes on the skids. This was a big risk coming into 2016 that DailyFX highlighted in their Q1 2016 US Dollar             forecast. Check it out here

Happy Trading!
Comment: FXCMSSI continues to drop (now at +1.41) and the wave structure is looking constructive to the upside now that we have cleared 1.45. 1.4365 (smaller degree wave 1 high) should hold if this is a larger wave C higher.

Great analysis sir, love your work. Yes, there seems to be quite a bit of upside potential here!
Sir can you tell me how you use divergences? Because I see a massive bearish divergence on your chart.
Hi Yahia -

Divergences, as you know, doesn't mean prices will turn. It simply means the trend is losing momentum. I think of it like driving a car that just ran out of gas. The car still moves forward, albeit at a much slower pace. Then, if the car were on an incline, it would stop and reverse.

So momentum divergence at a place that makes sense from a wave count would be ideal. Typically divergences appear in 5th wave relative to the 3rd wave and in B waves and sometimes C waves (or other ending waves like Y or Z).
+1 Reply
Yahia.Awes JWagnerFXTrader
Makes sense.
what is open interest in SSI such as -10.0 in USD/CAD and 8.0 in GBPUSD
Hi bharatest - as of this afternoon, open interest is:
GBPUSD -> Long positions are 2.9% higher than yesterday and 5.9% above last week. Short positions are 3.8% higher than yesterday and 6.4% below levels seen last week.

SSI reading +/-3 are considered extreme. So GBPUSD positioning hasn't moved dramatically in the past week. 1.45 is the area that if prices jump above, I would be looking for a corresponding drop in SSI.
bharatest JWagnerFXTrader
thanks for your reply
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