Get optimistic about sterling vs dollar if this happens
Reversal to parity was a possibility not long ago, so our chartist has another look at likely outcomes.
18th November 2019 08:59
Reversal to parity was a possibility not long ago, so our chartist has another look at likely outcomes.
The saga of sterling against the dollar must surely deserve a country music song. Or perhaps some Blues music. The pairing had reached the point where reversal to parity appeared destined, a mood which lasted an entire session at the start of September. Then it changed direction faster than UK political policies when viewed against opinion polls.
Before embracing optimism for the future, it looks worth pointing out the danger if this pairing wanders below the blue line on the chart below anytime now.
Generally speaking, this will be a dreadfully dangerous signal, taking the pair back into a region where severe reversal to parity once again becomes probable, extremely probable.
Blue is presently around $1.26, dipping to around $1.25 by the end of this year. When a price breaks above a downtrend, then retreats again below, a loss of confidence usually occurs pretty quickly thereafter.
For now, we shall pretend faith in sterling's potential for the future as above $1.30 should now bring recovery to an initial $1.314, sufficient profit to enjoy air-conditioned luxury in Pizza Express.
Above $1.31 and we're supposed to accept the potential of ongoing longer term recovery toward $1.35 in the future, an outcome with a considerable question mark due to the ruling downtrend from 2014.
At present, the pairing needs above $1.32 to beat this downtrend and make the potential of $1.35 real. We have doubts for a multiplicity of reasons, not least being the glass ceiling at $1.335 thanks to movements since mid 2016 and The Brexit vote.
Since then, the relationship appears to be pivoting above and below this horizontal trend line with more time spent below, casting considerable doubt on its future potentials.
In plain English, the pairing only deserves real optimism if above $1.335, something which currently looks unlikely.
Source: Trends and Targets Past performance is not a guide to future performance
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.
Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
Editor's Picks