Forex Investment and Currency Trading

Analysis – Daily Chart

GBP-USD has broken below the 1.4355 key low, triggering a bear flag that targets 1.25 on a minimum measure. Daily momentum indicators are flat to bearish, but the RSI is showing some clear bullish divergence as the new lows in this move in GBP-USD are not being followed by the RSI indicator. The consolidation through October/December though looks like a falling wedge pattern, with the slide in spot through support leaving the bear trend to extend. Targets on a simple Fibonacci extension (taken from the 2.0155 to 1.4355 down move, extended lower from the 1.5372 high of 08 January) point to 1.3170 on a 38.2% projection, while former support reverts to resistance now, which comes in at 1.4355/1.4360. Moving average (MA) studies show the 20-day MA at 1.4623, the 60-day MA at 1.4997 and the 250-day MA at 1.8166, highlighting the trend breakdown. While the bear case seems clear cut, the break down below 1.3682 on 21 January saw buyers step in at 1.3624, with spot recovering quickly. This suggests that the current losses may be overdone, at least for now, and some consolidation could follow now.

Analysis – Weekly Chart

The weekly chart shows heightened breakdown risk for GBP-USD, but this is tempered by the fact that sustained losses below 1.40/1.39 have been difficult to hold onto since 1985. A sustained turn below the 2001 low of 1.3682 would target the 1985 low near 1.0520. Use the 1.4355/60 31 December 2008 lows as resistance now, with a turn above this level leaving 1.50 to 1.5360 open on a reversal.

Strategy – Three-Month View

GBP-USD downside risk is big, but a range trade back to 1.50 is expected near term. Technically, clients should reduce cable shorts if 1.3682 continues to hold on daily closing basis and move back to flat.

14-day RSI: Neutral signal
The 14-day RSI is at 32.91and falling. The BUY signal triggered in mid-November (and bullish divergence that is being shown now) has not worked yet, but is a warning signal to bears. The signal therefore is weak here and at most is continuing the FLAT signal given by its relatively flat path recently.

Stochastics: Bearish signal
The fast stochastic is at 17.66 having only just dipped into oversold territory as it crossed down below the slow line which is still hesitating at 24.30. This is a ‘SELL’ signal and the indicator may remain oversold for some time.

MACD: Bearish signal
The fast and slow lines of the MACD indicator are both still below the zero line signalling a ‘SELL’. There has been a lot of crossing of fast and slow lines in this indicator lately with the most recent being a turn downwards by the fast line which crossed the slow from above.