Thursday 24 September 2009
The Pound has been in a protracted sideways trading range for four months. We
previously called the two key reversals, and particulary the one the first week of
August. This stands out like a sore thumb on the weekly chart, below. A key
reversal was created the week of 29 June and became resistance. Five weeks later
was the failed probe. Price made new rally highs, reversed on increased volume
and closed low end, under the opening price for the week…weakness. Sellers came in and took control. The Pound did not give up easily as it maintained the trading
range and attmpted a retest high three weeks ago. This weekly failed probe had
very negative implications for the Pound, so a failed retest was to be expected.
On the daily chart, we went short at 163.77, Wednesday, once price broke an intra
day support channel. The short range retest high from 11 September gave another sign of weakness, but because the Pound continued to be in a trading range, we
chose not to act until it became clear that it would move out of the trading range.
We got nicked for 77 pips going short the day before, but once price developed
yesterday, it was clear downside momentum was building. The FOMC
announcement precluded selling prior to 1:15 CST, but once the dust cleared, after
an initial rally, selling began and price broke down sufficiently for us to get short,
again, 163.77.
Today’s range, as this is being written mid-day, is the largest range bar for the
contract, and it points down. Volume increased sharply on the decline, and it
confirms supply coming into the market. As we write, price has stopped at the 8
July low of the four month range, 160.22, today’s low 160.30.
The support may hold here, initially, but the large range and increased volume
show the HOW price reached support, and it did it in a strong selling fashion. We
locked in profits on half the position when price reached 161.60, the September
support, anticipating a bounce from there on a range that was already wider than
average. That put 217 pips in the bank, and not the Bank of England!
We remain short and expect to add to the position as market activity develops.
There is no guarantee that price will break support and reach the low 150s, but
right now, we have market activity and a high degree of probability on our side.
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