British Pound Shows Signs of an Important Bottom

aily Forex Technicals | Written by DailyFX | Dec 13 08 05:05 GMT |

A drop below 1.3680 is still very much a possibility for the GBPUSD in mid 2009 but there are signs that at least a multi-month low is in place. An in-depth look at the technical considerations suggests that the mid 1.60's could be reached in the first quarter of 2009. If the GBPUSD closes down this month (December 2008), then it would be six months in a row that the currency pair would have done so. This is worth noting because the previous two times that the GBPUSD closed down 6 months in a row, a major bottom formed. Of course, there are 2 other instances where the GBPUSD closed down more than 6 months in a row. Even then, the drop was only at its midpoint. This is an observation, not a forecast. Still, the observation warrants a deeper look into where the GBPUSD may be headed. There are a number of patterns that could unfold longer term from the current juncture. The one shown above (which is the one that I have shown on numerous occasions for over a month) suggests a drop below 1.3680 before a major low is in place (close below long term support line favors this count). There is another pattern though that gives scope to a significant low forming prior to 1.3680. That pattern would be a triangle. Under the triangle scenario, the GBPUSD would likely have already bottomed in wave (C) of the triangle and be headed higher now in wave (D) for many months. A close examination of price action since the 1992 bottom reveals a potential inverse head and shoulder as well, with the 1992 low as the left shoulder and the right shoulder forming now. Monthly RSI is at 10, which is a level reached just twice, in 1976 and 1985; on both occasions the GBPUSD soared in the months and years that followed. Take the RSI reading with a grain of salt though. The month is not over yet and a substantial rally the rest of the month could lead to a higher RSI reading and render this observation worthless. From 2.1160, the GBPUSD has completed 3 waves down in what is probably a 5 wave drop that will end below 1.3680. Regardless, a large 4th wave rally is due and could reach the 38.2% of 2.0162-1.4465 at 1.6641, which intersects potential channel resistance in early March. Zooming in, the GPBUSD is supported by a short term trendline. A spike below the line today constitutes a false break of the line, which is bullish in my opinion. There were likely many sellers on that spike and their short covering will eventually propel price higher. Near term, price should remain above 1.4675 if a larger advance is underway. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.