Sterling only recovered to 1.2639 (just missed our recommended short entry at 1.2655) before meeting anticipated selling interest and the subsequent selloff adds credence to our bearish view that the rebound from 1.2241 has ended and downside bias remains for a retest of this level, break there would confirm the decline from 1.3069 top has resumed and may extend weakness to previous chart support at 1.2215, then 1.2150, having said that, loss of momentum should prevent sharp fall below another chart support at 1.2102 (this year’s low) and price should stay above psychological support at 1.2000, bring rebound later.
To recap the larger degree count, the selloff from 2.4965 (July 2007) is the beginning of wave V with circle and is labeled as 1: 2.3760, 2: 2.4425, wave 3 extension ended at 1.1470, followed by wave 4 at 1.5547, the quick rebound from 0.9106 suggests wave 5 as well as entire circle wave V could have ended there, hence consolidation with mild upside bias is seen for major correction to take place, bring initial test of 1.5547 (previous 4th of a lesser degree).
On the upside, whilst current recovery from 1.2270 may bring initial bounce to 1.2400, reckon resistance at 1.2472 would limit upside and bring another decline to aforesaid downside targets. Only a break of previous minor support at 1.2537 (tentatively sub-wave 1 trough) would abort and prolong consolidation, risk a stronger rebound to 1.2590-00 but price should falter below said resistance at 1.2639, bring another decline later.
Recommendation: Sell at 1.2455 for 1.2255 with stop below 1.2555.
On the Monthly chart, the longer-term count is that major downtrend is under way with circle wave I at 2.8645 (Sep 1.978), then wave II with circle at 4.6175 (Feb 1981), the wave III with circle ended at 1.7425 (Nov 1995) and followed by wave IV with circle at 2.4965 (July 2007 with a short wave C) and wave V with circle has possibly ended at 0.9106. A monthly close above 1.5547 would add credence to this view, bring major correction to 1.7000, then towards psychological level at 2.0000.
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