Why agony may not be over for battered British pound
28th September 2022 07:17
by Alistair Strang from Trends and Targets
The new chancellor's mini-budget has torpedoed the UK currency, but how far can the pound fall? Independent analyst Alistair Strang checks the charts for clues.
It was 1985 when sterling last collapsed against the dollar, finding itself at a bottom of 1.05, marginally above the most recent fall from grace. We’re not convinced bottom is “in” for the pound.
From our perspective, the problem comes from the pairing reaching 1.03x (the exact number varies depending on which platform the data is taken from). From a Big Picture perspective, we’ve been expecting 1.01, perhaps even 0.99 as “bottom”.
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Perhaps it shall be the case that residual strength in sterling is presenting itself as capable of a solid bounce but, this being the case, movements in the last couple of days fail to inspire us with any confidence.
In theory, the bounce should have ensured the pairing closed Monday above 1.088 but, despite briefly exceeding such a level, failed to close in relative safety. As a result, we suspect the agony may not be over for the UK pound.
From a near-term perspective, if weakness is indeed hiding within the GBPUSD pair, below 1.0610 looks capable of reversal to 1.0402 with secondary, if broken, down at 1.0160. Strangely, this is extremely close to 0.9986, the bottom the Big Picture almost demands must provide a bounce.
Past performance is not a guide to future performance
In the event the relationship manages above Monday's “spike” high of 1.095, there is apparently an encouraging potential of recovery to an initial 1.1353 with secondary, if beaten, at 1.2184.
Unfortunately, we feel duty bound to now mention sterling is trading in a quite absurd area, one where we are allowed to mention 0.65 as the “ultimate” bottom.
Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.
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