The Intermarket Report May 30, 2008

The Futures / Inter Market Report

Trading the World’s Markets                            

May 30, 2008

                             
Matthew Caruso, CMT                                  
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British Pound to regain strength

The British pound has been in a correction since the end of 2007 which is typical given its seasonal tendency. After a 7 month correction the pound now looks to be ready to embark on another up leg in its long-term bull market. Will it make new highs? It seems at this point that it is a very strong possibility. However, what is important for the moment is that a strong rally is about to ensue and most traders would want to partake.

I want to begin by taking a look at a longer term view. The first chart we will look at (figure 1) is about a 10 year chart and you can clearly see the strong support that the pound is up against with the clearly defined uptrend line. The value of this trend line is reinforced by the very bullish position of the commercial traders, which can be seen in the bottom of figure 1.Commercial traders are essentially the most bullish they have ever been since the beginning of the data. That is rather extraordinary. Other extreme bullish readings are circled on the charts and as you can see, they all lead to strong up moves. Given the strong support by the trend line, the bullish commercial position is even more bullish. 

Figure 1 chart by genesisft.com 

Another import element that is now coming into a bullish positioning is the very dominant 14-16 week cycle. In figure 2 I have isolated all the major weekly cycle bottoms of the past 3 years. As you can see, bottoms occur at regular intervals of about 14-16 weeks. These are of course always confirmed by an oscillator that is “timed” to the cycle. The current bottom appears to be in place and has been confirmed by the oscillator. What is even more bullish is that this cycle low is higher than the last and it is occurring on a long term trend line and with very bullish commercials. The fact that this weekly low is higher than the last implies that there is an even longer term cycle now turning higher as well and we should, theoretically, exceed 2.0244 – the last cycle high. Of course the market action will dictate how I plan my exits as price climbs.

Figure 2 chart by genesisft.com 

Lastly, daily price action is now hinting that the correction is over. The downtrend line has been broken and it appears that a flag is forming and being supported by the same down trend line. A break above the flag high would likely lead to a resumption of the newly established short term up trend and would confirm that the lows are definitely in place.

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