The Futures / Inter Market Report

Trading the World’s Markets                            

February 15, 2008

                                            
Matthew Caruso, CMT                                  
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Rally expected for British pound

            Anyone watching the major currencies over the past weeks would have noticed the strong correction that the British pound has been experiencing. Back on December 7^th (http://tradesystemguru.com/content/view/125/58/) I showed the 16-23 week cycle that is present in the British Pound. Well, 23 weeks have passed and it seems that bottom has occurred. A change in the downward trend is required in order to be certain of a potential rise, but at this point that seems like the most likely future course of action. 

            I would like to first draw your attention to figure1. In this chart I have drawn equidistant 23 week cycle lines. As you can see, the British pound typically bottoms approximately every 23 weeks. It has now been 23+ weeks since the last cycle bottom that occurred in August of 2007. Given that this cycle low is lower than the last it is likely that any rise in the pound will not exceed the highs made in October of 2007. However this does not mean that we cannot experience a strong rise just the same. As you can see in figure 1, commercial traders are nearly the most bullish they have been for years. As well, the weekly stochastic is over sold and has been for some time.

Figure 1 chart by genesisft.com 

            The British pound is now showing a strong positive divergence in the MACD. Almost all other major bottoms in the British pound have coincided with this MACD setup. As well, it appears that price has entered into a triangle corrective pattern. Triangles typically resolve themselves in the direction of the prevailing trend, which for the moment is down. However, given our strong likelihood for a cycle bottom, the oversold momentum and positively diverging MACD, I feel that an upside breakout above the blue down trendline will likely confirm a trend reversal and the start of a new leg up. Likely targets would be the 2.04 as measured by the triangle.

Figure 2 chart y genesisft.com               

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