My last Big Picture article (link here) had given 1.33 as a potential bottom against this currency pairing. In the period since, the relationship has indeed foundered to 1.33 and worse, broken very slightly below. This unfortunately means I now get to write 0.9888 seems like a viable proposition sometime in this lots future. To completely and utterly cancel my software argument pointing at this, a miracle is now needed capable of bringing this grouping above BLUE on the chart, currently 1.576.
In recent days, we've experienced plentiful media commentators pointing out Sterling is trading at 30 year lows but the dramatic number misses out an important part of the story. As the chart below shows, Sterling has conclusively broken a 31 year uptrend and the situation now exists of weakness below 1.26 bringing 0.9888 into the immediate drop cycle with secondary a longer term and somewhat absurd looking 0.6229. I should point out, the only reason I'm actually assigning a value to that bottom number comes from Crude Oil. For months, I would coyly draw "ultimate bottom" lines on charts, never for a minute believing we would see Brent at 28 USD. Lesson learned!
I should also admit, my calculation of 0.98 is slightly below "The Low" achieved in 1985 when the pairing achieved 1.06
Having scared the pants off myself with such foul drop potentials, as shown the market needs better 1.576 to cancel the ruling drop argument BUT I'd be pretty relieved if the relationship strengthened above the RED line, currently 1.44. As a result, I need look for criteria which will give some early warning of hidden strength.
At time of writing, £1 will give you $1.2945US. If this rate manages to better 1.306 anytime soon, I shall be looking for growth to 1.325. Despite such a movement being sufficient to engage the saliva glands of Forex traders, what will really interest me will be 1.325 being exceeded as it shall be the first signal this pair have probably bottomed. The second signal will come if the secondary target at 1.359 is bettered as I'd look quite favourably on this for the longer term as 1.41 becomes attainable.
As the chart shows, this still does not recover the pair into 'safe' territory above the RED uptrend but if experience is anything to go by, it would doubtless signal the start of an entirely new trend between the two countries currency. For the sake of fair play, I've painted a line at 1.51, an unexpected bonus should 1.41 ever be bettered!
But for now, it's realistically viewed as showing the potential of 0.9888 as a bottom, needing above 1.325 to hopefully cancel.
I can hope! Again.
Alistair Strang is founder of www.trendsandtargets.com