The Chart du Jour

FX Focus

May 3, 2000

By, Barclay T. Leib

Some of our favorite currency crosses of past years have involved pairings such as CAD/DEM, AUD/JPY, AUD/CHF...not your average fare grant you, but often interesting in their structure more so than the obvious charts that everyone looks at. Today, we want to focus on yet another somewhat oscure cross: GBP/AUD and how it appears on the charts both long term, short term, and in relation to another old favorite GBP/DEM - now replaced of course in interbank trading by EUR-GBP.

First of all, a longer term picture:


Chart produced using Advanced GET End-of-Day

It would appear to us that GBP/AUD had an impulsive move down in either a 1 or A Wave, and for months now has been tracing out a substantial a-b-c 2 or B wave bounce. Another plunge looks probable in either a 3 or C down.

When one zooms in on the daily chart, a break of the uptrend in GBP/AUD looks imminent.

But hold on a second. For a few days now we have been suggesting that a low is likely to form in the euro near 90.42 -- equivalent to the old DEM level of 2.1620. How can we be bullish the euro, but bearish GBP/AUD, when the euro and the pound tend to trade with relatively similar strokes as European currencies? The fallout of course, is that we are also bearish GBP/DEM, bullish EUR/GBP.

Although the wave count on the old GBP/DEM chart does not look quite complete (perhaps now ending a iii of 5), we just touched 3.40 -- a level that anyone who has traded foreign exchange for any period of time will recognize as damn high in this cross. For comprison, George Soros broke the Bank of England's defense of the pound in 1992 way down at approximatively 2.75, on the way to 2.18. At current levels, can the British economy export anything anymore? The present level of their currency can only be stultifying for their economy longer term.

Meanwhile, we pictured the AUD/USD chart by itself earlier this week, and it looked like a complete 5 waves down. So the fallout to us means that one should consider short GBP/AUD together with long euro positions. Alternatively stated, this is also the same of course as short GBP/DEM (long Eur/GBP) and long AUD/USD. The combined picture of these various charts clearly suggests that change is in the wind -- with the AUD and euro likely to replace the pound and U.S. dollar's previous leadership positions.

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