Cable continues to trade in the wide, 1.5710/1.7040 range that has been in place since Aug. Note that the 5 wave fall from the 1.7040 high (see numbering on daily chart below) suggests that this multi-month period of ranging is not yet “complete”, and targets eventual declines back toward the base at 1.5710 (and potentially below, see longer term). Nearer term however, there are still no firm signs of a top of that magnitude is in place, leaving open scope for more topping and potentially even temporary new highs above the recent 1.6840 first (see daily chart below). At this point the nearer term shape of this top remains in question (new highs or not), but confident that an important high is at least close. Also, the daily macd is near a new sell signal, adding weight to the view that a potentially important top is close (see bottom of daily chart below). Would also keep an eye on eur/gbp, as it could help to determine if new highs in cable are seen (currently near the key .8920 support area with lots of stops likely below). So for now, would wait for a break below the bullish trendline since Oct (currently at 1.6540/55) to short as it would increase the likelihood that a top is in place (would also allow for more topping, if that does indeed occur). Would also short on an intraday break as it could trigger a further downside acceleration. Was stopped on the Oct 22nd short at 1.6600 on Monday’s gap above the bearish trendline from Aug (then at 1.6620, closed at 1.6755).
Longer term as mentioned above, eventual declines back to the Oct low at 1.5710 and even below is favored. However at this point, the extent of the bigger picture weakness below 1.5710 remains in question, with potentially only a slight break (versus a downside acceleration). But in both cases, at least some downside below 1.5710 is favored. So for now, would maintain the longer term bearish bias (switched on Oct 15th at 1.6235), and with the expectation of a better sense of the bigger picture downside as the pattern lower unfolds. Note too that longer term support lies just below the 1.5710 low at 1.5675/00 (38% retracement from the Jan low at 1.3505).
