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Sterling-Pound Analysis

Sterling Pound targets 1.7300-50

18-Apr-2014: GBPUSD 1.6785

There is something very rare and special happening on the Sterling Pound charts. There are three projections for the Sterling Pound in the charts below, drawn from two different perspectives and in three different timeframes, which are all converging at the same level of 1.7300-50. Indeed a rare occurrence.

OVERALL BULLISHNESS

With the bullish break of the 3 year long black channel at 1.6260 (Nov-13) and the firmly established series of higher highs and higher lows since 1.4813 (Jul-13), the long term trend has clearly changed from bearish to bullish.

We see two bullish possibilities in the short to medium term, marked by the green and purple lines within the red channel. A bearish possibility would be considered only on a break below 1.6550 on the red channel.

WAVE EQUALITY TARGETS 1.7300-50

Generally, any two upmoves, which are interrupted by a correction, tend to be equal. This enables us to get a target for the second upmove from the first. Here we look at two sets of upmoves in two different time frames.

The shorter timeframe, starting from the Red B (1.4813, the July 2013 low) yielded an upmove of 1447 points to 1.6260, marked by the Black (W). A very small correction to Black (X) level of 1.5854 followed. The second upmove is now underway, labeled as Black (Y). If this Black (Y) achieves equality with the Black (W), we get a target of 1.7301.

The longer timeframe starts from the level of 1.4225 (May 2010 low). The first upmove ended at the Red A level of 1.6746. This was followed by a long correction to the Red B (1.4813, the July 2013 low). The second upmove within this longer timeframe is now underway and is labeled as Red C. If the Red C achieves equality with Red A, we get a target of 1.7333, nicely coinciding with the short term target of 1.7301 just mentioned above. That gives the level of 1.7300-50 (marked on the chart) a lot of significance.

But the really interesting reading comes from a totally different perspective, overleaf.

RSI INDICATOR GIVES A TARGET OF 1.7300-50

Any momentum indicator like RSI is supposed to be in sync with the price, i.e. when the price makes a high, the indicator follows suit. But the really significant signals come when this synchronization is not there, as shown in the chart above.

If the RSI makes a lower bottom but the Price makes a higher bottom, that is taken as a positive bullish signal and is generally termed as a "Positive Reversal" or a "Hidden Positive Divergence". And, interestingly, this is a rare instance where the indicator itself can give us a price target. Please see box marked as Case 1 in the chart above. Without going into the calculations, the lower bottom in the RSI in the Sep-Dec period of 2011 had given us a target of 1.6073 after the second price bottom of 1.5441. This was achieved in the next 6 weeks. We can see the same phenomenon occurring now, as shown in box Case 2. The RSI (below the box) has again made a lower bottom. But, the Price has again made higher bottoms at 1.5921 and 1.6832. From these, we get a target of 1.7306 for the current upmove.

Serious Readers may please note that the price bottoms indicated in the chart above are not the actual swing lows for that period but the closing values of the candles corresponding to the RSI indicator bottoms.

CONCLUSION: TARGET 1.7300-50 WHILE ABOVE 1.6550

Thus, the confluence of targets we are getting from the two totally different perspectives makes the target region of 1.7300-1.7350 very important. This is further reinforced by the fact that the 50% retracement level of the fall from the 2007 top at 2.1161 to the 2009 bottom of 1.3514 also comes at 1.7337.

The conclusion is that as long as the Support at 1.6550 (this value will rise by approximately 0.0030 every week) is not broken, we can expect 1.7300-1.7350 to act as a magnet for the Pound over the next few weeks.

 
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