My favorite part about being a technician is the ability to apply our tools to any asset class on any time frame. If we’re not sure which way stocks are going, there are always opportunities in commodities or in currencies for example. Today we’re taking a look as some fascinating developments in British Pounds, particularly in $GBPUSD.
The first chart shows a weekly line chart connecting all of the weekly closing prices since 2006. After peaking at 2.08 towards the end of 2007, along with US Equities, prices collapsed for over a year losing a third of the value relative to US Dollars. As money came out of the stock market throughout 2008, this chart shows just how aggressively that money flowed into US Dollars. British Pounds, were one of the things they sold that year to get into the safe haven that is (was?) the US Dollar.
Since the initial rally in early 2009, prices stalled right around the 38.2% Fibonacci Retracement from that 2007-2009 decline. This level has been a problem ever since as we failed there once again in 2011. I am very impressed by the fact that prices have now returned to this former level of resistance for the third time. Remember, the more times that a level is tested, the higher the likelihood that it breaks.
The next chart shows the weekly bars breaking out above this downtrend line from the 2009 highs, yet still below this key resistance level. So I’m saying there’s a chance….
Look at momentum breaking out above 5 years of resistance. The ability for the 14-period RSI to hit overbought conditions changes the complexion of this particular asset from a structural perspective. Remember that overbought readings are strong evidence of buyers, hence the “overly” bought conditions.
I’m looking for a weekly close above the 1.672 to confirm that a new uptrend has begun. Since this is such a massive base, 2 weeks above those levels would really be confirmation and still gives us plenty of time to get involved. As long as prices remain below those levels, I don’t see any reason be overly aggressive just yet.
Finally here is a daily candlestick chart showing resistance levels from October that date back to 2012 holding as new found support. This is a great example of polarity principles playing out in real time. Short-term aggressive longs can use those lows around 162.50 as a stop if you have to be in it.
I still prefer to use the weekly time frame as the default for this position since it is such a huge base. As the saying goes, “the bigger the base, the higher in space”. And ladies and gentlemen, five years in this tight range constitutes a massive base and therefore massive upside potential.
I’m using the short-term chart to watch near term support levels. But more importantly keeping a close eye on this bearish momentum divergence dating back to September of last year. If momentum breaks out to overbought conditions as prices hit new 52-week highs, it could be the catalyst to really break this thing out on the larger time frames, which is really what we’re concerned with here.
I really like this one guys. Keep a close eye on it for confirmation.
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Tags: $GBPUSD $DX_F $FXB $UUP