Posted on May 12, 2023, 07:59 by Dave Toth

In yesterday morning’s Technical Webcast we discussed the British pound’s waning upside momentum on both a short- and longer-term scale and identified 05-May’s 1.2534 smaller-degree corrective low and 10-Apr’s 1.2364 larger-degree corrective low as the short- and long-term bull risk parameters this market needed to sustain gains above to maintain a more immediate bullish count.  Within an hour of that webcast, the 240-min chart below shows the market’s failure below 1.2534, confirming a bearish divergence in short-term momentum that defines Wed’s 1.2692 high as the end of at least the portion of the 8-month uptrend from 10-Apr’s 1.2364 low and our new short-term risk parameter from which non-bullish decisions like long-covers and bearish punts can now be objectively based and managed by shorter-term traders with tighter risk profiles.

What’s vital about this admittedly short-term momentum failure is that it could be defining this week’s 1.2692 high as the end of a major 5-wave Elliott sequence that dates from 26Sep22’s 1.0392 low as labeled in the daily (above) and weekly (below) log scale charts.  Of course, this minor mo failure is of a grossly insufficient SCALE to conclude anything more at this juncture than an interim corrective dip within the major uptrend.  Indeed, a failure below 10-Apr’s 1.2364 larger-degree corrective low remains required to break even the portion of the uptrend from 08-Mar’s 1.1803 low, let alone threaten the 8-month uptrend, so we don’t want to get ahead of ourselves.  However, this wave count looks particularly compelling, and stemming from the immediate area around the (1.2634) 61.8% retrace of Jun’21 – Sep’22’s portion of the secular bear trend from 1.4256 to 1.0392 shown below, both short- and long-term traders are urged to be aware of the prospect for a more protracted peak/correction/reversal count that could expose a multi-month relapse to the 1.17-to-1.12-handles, or lower.  Commensurately larger-degree weakness below 10-Apr’s 1.2364 corrective low will be the next reinforcing element to such a broader peak/correction/reversal threat.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline position as a result of yesterday’s short-term mo failure and may even consider a cautious bearish punt with a recovery above 1.2692 required to negate this call and warrant its immediate cover.  Longer-term institutional players are advised to pare bullish exposure to ore conservative levels and neutralize remaining exposure on the immediate break below 1.2364, where even a cautious bearish policy should be considered ahead of what could be protracted losses in the months ahead.

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