Is threat of sterling collapse now over?

by Alistair Strang from Trends and Targets |

Ongoing Brexit talks are a major catalyst for sterling, but know this before trading the pound.

GBP:USD

This relationship, often referred to as cable (simply due to original trades being enacted across the transatlantic "cable"), was last reviewed in January. It recently achieved our $1.33 target, even bettering it slightly and closing a session marginally in optimistic territory. Has a trip to Disney in Florida become possible?

Firstly, it's probably worth considering the chart inset and in particular, the red circled area. This movement, a few sessions ago, represented the market opting to move the pairing above the immediate downtrend, one which had been threatening reversal to $1.2 initially but realistically, it promised parity eventually.

Thankfully, the market has rendered this immediate calculation improbable - not impossible. The relationship requires above $1.375 (light blue) before we can totally forget about parity.

Before moving on to cheerful hopes for a future against sterling and the US dollar, it's probably best to mention the danger now at $1.20, if achieved. Anything below this level will justify panic, again with a trip to parity possible.

Secondary, if parity breaks, is an ultimate bottom of 0.69 pounds to the dollar. Thankfully this danger is receding as it appears the markets are taking action to avoid this trip to hell.
 
For now, we shall be more interested if the relationship firms up above $1.332 as movement to $1.359 is expected initially. While the visual implication of such a target is to expect some hesitation, our longer term secondary - if the pair closes above $1.359 - is at $1.3974.

This will recover sterling above the light-blue line, once again attracting tourism to the dubious attractions of Florida. Or (to ride our favourite hobby horse) making skiing in Colorado affordable again!

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, Shareprice, or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

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