The British Pound futures have been in a downtrend for the past two weeks.It had a good rally yesterday after the Bank of England’s meeting.The rally was a good opportunity for a short sale; let’s look closer.
On the daily bar chart below, momentum (the bottom pane of the chart) gave a buy signal for yesterday, telling us to expect a rally yesterday.Thursday’s rally was a great example of the pattern for a momentum buy day-opening near the low of the session, rallying during the session, and closing near the high.So far, so good.
Yesterday’s high was 1.6380. Note the green line at 1.6362; that is a 50% retracement of the decline from 6/30 high to Wednesday’s low.The 50% retracement level is often strong retracement resistance (or support); as the Pound is in a down trend, I would expect it to be good resistance.
Today was a momentum sell short day.I circled momentum at yesterday’s reading; it was at the highest point for the span of the chart.This meant I was looking for a momentum sell short day-the mirror image of a buy day.
Today has followed the sell short day script; opening near the high (and the retracement resistance area) and selling off over the course of the day.The red line at 1.6181 is a 50% retracement of the rally from Wednesday’s low to yesterday’s high; it’s an important level to watch for the balance of the session.Failure to hold there could extend the downside, although that seems unlikely this late on a Friday in summer.
Note the fib levels
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