RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Currencies

Sea Change in Sterling?

Posted 01/11/2019 7:43AM CT | RJO Market Insights

In yesterday’s Technical Blog and in the face of continued bullish developments in the typically positively correlated euro, we highlighted the importance of 31-Dec’s 1.2862 high as our short-term risk parameter the Mar pound contract needed to stay below to maintain odds that the past month’s recovery attempt as merely a correction within 2018’s major downtrend.  Overnight’s poke above this level could still be (the completing c-Wave) component of such a bear market correction.  But as a direct result of this resumed and at least intermediate-term uptrend, the market has identified today’s 1.2749 low as the latest smaller-degree corrective low it is minimally required to fail below to stem this rally and tilt the directional scales back towards that broader bearish count.  Until and unless such sub-1.2749 weakness is shown, there’s no way to know that this month’s rally isn’t the dramatic 3rd-Wave of a base/reversal process that could be major in scope.

British Pound Mar '19 240 Min Chart

British Pound Daily Chart

Against the backdrop of Apr-Dec’18’s major downtrend shown in the weekly log chart below, the SCALE of the past month’s recovery attempt is obviously insufficient to CONCLUDE a major reversal higher.  Indeed, the market is only now encroaching on the middle (i.e. 50% retrace) of Sep-Dec’s 1.3350 – 1.2479 decline amidst waning upside momentum shown in the daily active-continuation chart above.  So the past month’s recovery attempt still falls well within the bounds of a corrective/consolidative event that would ultimately give way to the much broader bear.

HOWEVER….the combination of the market’s proximity to and rejection (thus far) of the lower-quarter of the past couple YEARS’ range amidst historically bearish levels in the bullish Consensus (marketvane.net) measure of market sentiment cannot be ignored as a potentially powerful one typical of major BASE/reversal-threat conditions.  IF these conditions are indeed the preset to such a rally, then breakouts above prior, initial counter-trend highs like today’s poke above 1.2862 should be characterized by continued trendy, impulsive, even obvious gains straight away.  Herein lies the importance of even smaller-degree corrective lows and short-term risk parameters like 1.2749.

British Pound Weekly Chart

 

Finally, long-term players are reminded of the extent and (5-wave) impulsiveness of Jan’17 – Apr’18’s rally that cannot be ignored as only the initial (A- or 1st-Wave) of a major correction or reversal of the secular bear trend shown in the monthly log chart below.  If this count is correct, then 2018’s relapse would be considered the (B- or 2nd-Wave) correction of that initial rally that is now setting the stage for what could/should be a relatively explosive year-plus-long rally to levels last Apr’s 1.4413 high.  NOBODY is currently ready for or expecting such an event, but today’s poke above 1.2862 gives the bull (under this count) the opportunity to perform.  And we’re going to gauge that ability to perform by how this market sustains gains above 1.2749 and then certainly above 12-Dec’s 1.2479 low and new key long-term risk parameter this market needs to break to negate this long-term bullish count and re-expose the bear.

These issues considered, traders are advised to move to a new but cautious bullish policy and from 1.2850 OB with a failure below 1.2749 required to negate this specific call and warrant its cover.  In lieu of such sub-1.2749 weakness, further and possibly surprising gains are expected.

British Pound Monthly Chart

RJO Market Insights