Variety of variants for GBP/JPY

Introduction

I divided the article on EUR/JPY and GBP/JPY into two parts due to its large volume. The first part was released yesterday (refer to the article Horizontal triangle — is it a reversal or continuation pattern? (EUR/JPY)).

Today we will consider the currency pair GBP/JPY.

On the monthly chart we can see a pair of successive and approximately equal upward impulses that formed after the all-time bottom at 129.37 reached in 1995 (refer to Figures 1..3).

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These global impulses may be a part of upward wedge [1]-[2]-[3]-[4]-[5], the fourth wave of which is forming at the present. The fourth wave itself [4] may assume the shape of elementary zigzag but as a rule fourth waves assume a more complicated form.

In this case it is quite natural to expect the completion of the fourth wave [4] near the 180 mark or lower with the subsequent upward reversal of the global trend for forming of a large wave [5]. The critical level for this scenario is the ending of the supposed wave [2].

By now a downward zigzag has formed from the top [3] that theoretically can be wave [4] entirely (refer to the alternate variant of counting at the bottom of the chart). But taking into consideration its disproportionately small sizes we may with high probability consider it only a part of the downward impulse (A) of [4].

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On the other hand after a durable price decline in an impulsive mode and all-time bottom (wave a), a pair of successive upward impulses can be interpreted as 12-year pause — a large zigzag [A]-[B]-[C], that forms wave b of the global downward zigzag a-b-c. In this case we may expect further price decline in the form of an impulse or a diagonal triangle (wave c).

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Then the downward impulsive structure that has formed by the moment after the completion of wave b may be considered either a part of impulse [1] of c (in case wave c forms in the shape of an impulse) or a part of the first leg (A) of zigzag [1] (in case wave c forms in the shape of a diagonal triangle).

According to this scenario we should expect the price decline to the 120 mark and lower. The ending of the supposed wave b is the critical level for this scenario.

At any rate but since July of the last year a large downward impulse has been forming from the 251.07 mark and the most important task now is to determine its projected sizes. In the framework of this task it doesn't matter in the least which of the global scenarios should be considered the main and which of them is the alternate one. In order to avoid confusion in the variety of counting variants the number of which increases at an exponential rate the smaller the time-frame is, I will consider the scenario in Figure 1 to be the main (with the upward wedge).

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The most simple variant of counting of the impulse (A) doesn’t rule out that its fourth wave 4 of (A) is forming now that may complete near the 210 mark (refer to Figures 4 and 5). The following arguments support this value:

38% depth of the expected correction (Fibonacci level),
observation of guideline of alternation by the depth of corrections 2 of (A) and 4 of (A),
the area of the previous wave four [iv] of 3 of (A),
strong resistance level.

But before the price rises to the 210 level it must complete the downward zigzag (a)-(b)-(c) of [b] of 4, perhaps in the area of the ending of wave 3 (A).

In this case it makes sense to project the ending of wave 5 of (A) only after the completion of wave four 4 of (A). If we speak about possible shape of wave four itself so far only one thing is clear — it won’t be a zigzag. But there is one less probable variant when double zigzag (w)-(x)-(y) of [a] may prove to the entire wave 4 of (A). But then the duration of wave 4 of impulse (A) will be less than the duration of its wave 2, that occurs not so often on the FX market.

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The alternate scenario for impulse (A) doesn’t rule out that at the moment only wave 3 of (A) completes forming and only after that correction 4 of (A) will begin (refer to Figures 6 and 7).

If this is so the price decline in the impulsive mode below the 190 mark is expected in the nearest future. The area of projected values for the ending of wave 3 of (A) is in the range 189.95..183.54 (176.56).

The critical level for this scenario is the ending of wave [iv] of 3 of (A).

In spite of the variety of possible variants both in the main scenario and in the alternate one the nearest expected price movement is downward. Further forming of the wave structure of impulse (A) may suggest the most probable scenario.

Addition of July 21, 2008

In the framework of the accepted scenario for the cross rate GBP/JPY the supposed wave 4 of (A) continues forming. Here the current wave counting is specified.

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At the moment wave 4 of (A) has fulfilled the minimal requirements to the fourth waves of an impulse:

the price has almost completed forming of the supposed zigzag [a]-[b]-[c] of 4,
it crossed the upper border of the trend channel,
it has approached the 50% mark (limit value for the fourth waves of an impulse),
MACD 5-34-5 has practically crossed the zero line.

In this case the downward reversal of the local trend and the continuation of the price decline in the impulsive mode are quite possible.

Note

Given possible trading plans are purely informational purpose only and they should not be considered as trading guides or an invitation to make a transaction.