CURRENCY WATCH
FX
will play a pivotal role in any upside the pound may see. Looking closer at the development over the past year, we can see why many funds incurred losses. Tere was a lack of direction with volatile price swings that made it difficult for non-discretionary funds to make money as they must rely on a specific set of rules or strategies to follow.
GBPUSD Monthly chart
Putting the legal questions aside as there is no precedent to follow, we take a look at the GBPUSD charts for some clues that could help guide our decision making process into the first few months of the new year.
Te monthly chart shows the aſtermath of the 2008 Financial Crisis as price consolidates within an ascending triangle. Tis technical formation is considered bullish for the sterling; however, with current levels of uncertainty surrounding the euro area
as well as potential contagion from the EU, we are anticipating a break to the downside, especially when the two supporting levels begin to converge. A break below 1.5300 could test the psychological 1.5000 level before a close below that figure could see a test of the mid-lower 1.40s.
A break above the 1.6800 level, which is a 50% retracement of the 2008 financial crisis meltdown, could see a test of the upper retracement level of 61.8% just above 1.7500. Te double top at 1.6800
On the weekly chart, the pound found support just above the 1.5300 level with what looks to be an uneven ‘Head & Shoulders’ formation. Tis is bearish and a break of the converging supporting levels would support our outlook for a stronger dollar as this crisis reaches its summit (pun intended) sometime during 2012.
Tere are a few resistance levels ahead of the 1.6800 top. If the floor is held at 1.5300 and the market rejects an attempt to move lower, we may see further range trading and a rise back towards the lower-mid 1.60s would not be unlikely. Tere is good resistance between 1.5930 and 1.6180, the latter being the top of the right shoulder.
With the Bank of England supporting further quantitative easing and the International Monetary Fund revising UK growth to 1.1% from 1.6% (before isolationism became a topic), we find it difficult to see much, if any, upside. A sovereign downgrade of the UK could be the tipping point that sends the sterling lower. Adapting to market conditions will be more important than ever in 2012 as volatile trading conditions continue.
GBPUSD Weekly chart Alex Kazmarck FX TRADER MAGAZINE January - March 2012 23
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