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Sterling Relapse Identifies New S-T But Key Bear Risk Level

Posted 01/03/2019 8:36AM CT | RJO Market Insights

Yesterday’s failure below 27-Dec’s 1.2666 corrective low renders the mid-to-late-Dec recovery attempt a 3-wave and thus corrective affair consistent with our bearish count last updated in 18-Dec’s Technical Webcast and leaves 31-Dec’s 1.2862 high in its wake as the END or upper boundary of this correction that the market is now minimally required to recoup to threaten this bearish count.  In this regard this 1.2862 high serves as our new short-term but pivotal risk parameter to a still-advised bearish policy.

British Pound Mar '19 240 Min Chart

British Pound Daily Chart

On an active-continuation chart basis, the daily chart above shows that this week’s relapse in the now-prompt Mar contract has yet to break 12-Dec’s 1.2479 low in the then-prompt Dec contract.  On a cash basis below however today’s break did break its 12-Dec low of 1.2477, defining 31-Dec’s 1.2816 high as THE corrective high and risk parameter this market is minimally required to recoup to even defer, let alone threaten the major downtrend from 17Apr18’s high.

Great Britain Pound Daily Chart

 

British Pound Weekly Chart

Despite the magnitude of 2018’s relapse shown in the weekly log active-continuation chart above, we cannot ignore the very bullish prospect that this relapse is merely a correction of Jan-17 – Apr’18’s 1.2001 – 1.4413 rally.  And if this is what the market ultimately has in store for us, then the lower-quarter (1.2560-to-1.2000) of the past couple years’ range is where we would expect the market to 1) generate a ton of emotional bearishness and 2) confirm a bullish divergence in momentum needed to arrest the clear and present downtrend and reject/define a more reliable low and support from which non-bearish decisions like short-covers and new bullish punts can only then be objectively based and managed.  Herein lies the importance of corrective highs like 1.2862.

In lieu of such a downtrend-stemming bullish divergence in mo and on sharp contrast to the bullish count mentioned above, we can’t ignore a broader bearish count that contends 2017-18’s 50% retracement of the 2014 – 2017 decline isn’t another correction within the secular bear that may now be poised to crash and burn to new lows below 1.2000.

British Pound Monthly Chart

 

Finally, on a quarterly log scale close-only basis, the chart below shows 2017’s recovery attempt acknowledging the 15 YEARS of prior support from the 1.41-to-1.43-area as a huge new resistance candidate.  If the secular bear market from the 2007 high is still intact, such a former support area would be expected to hold as new resistance.

These issues considered, AT LEAST the 8-1/2-month downtrend from last Apr’s high has arguably resumed, leaving 31-Dec’s 1.2862 high in the Mar contract in its wake as the latest smaller-degree corrective high but key risk parameter this market is now minimally required to recoup to satisfy just the first of our three reversal requirements.  And while further lateral chop within the past three weeks’ range between the upper-1.24-handle and the that 1.2862 high should not come as a surprise, we anticipate a resumption of the broader downtrend to new lows below 1.2479.  Per such a bearish policy and exposure remain advised with a recovery above 1.2862 required to threaten this call enough to warrant a move to the sidelines to circumvent the heights unknown of a broader correction or possibly a major reversal higher.

Great Britain Index Quarterly Chart

RJO Market Insights