Tighten Cable Bull Risk to 1.3494

January 9, 2018 8:18AM CST

Following 02-Jan's break above both the late-Nov and late-Dec highs and resistance around the mid-1.35-handle as discussed in 03-Jan's Technical Webcast, the 240-min chart below shows that the market has been merely wafting laterally. On the heels of the rally from 15-Dec's 1.3302 low, this lateral chop could easily be just corrective/consolidative behavior ahead of a resumption of the uptrend that preceded it. Given obviously waning upside momentum however, a failure below 03-Jan's 1.3494 low will render that low and initial counter-trend low and confirm at least the intermediate-term trend as down. Given the market's proximity to the extreme upper recesses of the past quarter's range however, such admittedly smaller-degree weakness cannot be ignored as an event that could open up more extensive, if intra-range weakness and vulnerability in the weeks and possibly months ahead. Per such shorter-term traders are advised to consider 1.3494 as our new short-term risk parameter from which any bullish policy and exposure can be objectively rebased and managed.
pound_240min_chart
pound_daily_chart
The past couple months' recovery shown in the daily chart above is not unimpressive. But while 20-Sep's 1.3658 high and key risk parameter remains intact as resistance, Nov-Dec's rally arguably still falls under the umbrella of a recovery within a broader consolidation range that could still see a return to its lower recesses.

On a weekly close-only basis below, mid-Sep's 1.3588 high is exactly a 38.2% retrace of Jun'15 - Mar'17's 1.5883 - 1.2168 decline. And while a 46% reading in the Bullish Consensus (marketvane.net) can hardly be considered a "frothy" level of bullishness typical of major peak/reversal-threat environments, it nonetheless is the highest level in over three years. This 46% bullish reading won't inhibit further and possibly steep GBP gains. But if the market fails below our short-term risk parameter at 1.3494 and reaffirms resistance from the upper recesses of the 3-1/2-month range, we believe it will contribute to a count calling for at least further lateral-to-lower consolidation.
pound_weekly_chart
Finally, from a very long-term perspective, we would remind traders that we believe the extent and impulsiveness of 2017's rally is just the (1st- or A-wave) starts of a major, multi-year correction or reversal higher in sterling. In effect we believe 16Jan17's 1.1988 low completed the secular bear market from Nov'07's 2.1160 high. Within a major base/reversal PROCESS however, an often times extensive corrective retest of the low unfolds before major technical and fundamental events come into play to drive a more obvious and sustainable move.

Only a glance at the monthly log scale chart below is needed to see that the 1.35-to-1.38-area supported this market from Jan 2009 until Jun'16's breakdown below it that left it as a new and major resistance candidate. The past 3-1/2-months' price action constrained by that area would seem to reinforce this observation and suggest that the upper recesses of this range present a slippery slope for bulls.

These issues considered, a cautious bullish policy remains OK for shorter-term traders with tighter risk profiles, with a failure below 1.3494 threatening this call enough to warrant moving to a neutral/sideline position and circumventing the depths unknown of a correction or reversal lower. Longer-term players remain advised to maintain a cautious bearish policy with a recovery above 1.3658 still required to negate this call, reinstate the past year's uptrend and expose potentially significant gains thereafter.

pound_monthly_chart

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