GBP/USD: Reversal Pattern Suggests Top in Place

The US Dollar Index is trading at 15 year lows so one could make the argument that the dollar is 'cheap'. Of course, the greenback can continue to get cheaper but a short term GBPUSD pattern suggests that at least a near term top is in place at 2.0366 and warrants a bearish GBP, bullish USD bias.

GBPUSD Current Value: 2.0296
9/12/2007 10:32 AM
Sell 2.0320
Stop: 2.0375
Target 1: 2.0050
Target 2: TBD

This morning, we proposed an alernate count for Cable in the Techs. The wedge shaped rally from 2.0043 is either wave C of an A-B-B correction from 1.9651 of wave i of a 5 wave bull cycle that began at 2.0043. Either way, the wedge shape rally (also called a diagonal) is a weak structure and is often fully retraced.

The short term structure shows a 5 wave decline from 2.0366, indicating that the trend of the next larger degree is down. the decline from 2.0366 represnets wave 1 down (or a) in a new bearish cycle. Expect a corrective bounce towards 2.0321 before the next leg lower (which should be strnger than the decline from 2.0366).