Why the outlook for sterling is so grim

This analyst's charts point to a fresh plunge for the pound, but there is a way to avoid a catastrophe. 

At time of writing, sterling is trading at 1.2540 dollars. It has been a few months since we reviewed this. The pairing attempted to strengthen and then failed. Now, it's hovering with some intent toward weakness.

We're amazed to report, despite Brexit nonsense, Tory Leadership nonsense, or a US president visiting, nothing important has actually happened so far but… there are risks.

The big problem immediately is at $1.2525.  Travel below such a level now calculates with the potential of a visit to $1.240 next. Secondary, if broken, comes in at $1.2222 along with a fairly confident looking rebound potential.

However, the big picture takes issues should $1.222 break for any reason, as the uptrend since 1984 - in red on the chart below - risks being ignored in favour of continual reversal down to $1.1677.

To be blunt, if it were a share, we'd already assume the intention will be $.1677 as some sort of 'bottom', due to three quite distinct scenario pointing at this potential target.

Thankfully, the pairing does not require a great deal of work to rubbish such a prospect, needing only better than $1.310 (blue line on the chart) to spoil all three trading calculations. In plain English, for those with horribly deep pockets, $1.310 is your stop loss level.

Surprisingly, there's a tighter indicator which will suggest some relativistic strength is present. The pair need recover above $1.280 where we calculate movement toward $1.30 is possible. This creates the situation where even above $1.30 should give early warning it is "probably" not about to drop off a cliff.

For now, we suspect it's heading to $1.1677, hopefully as bottom. Unfortunately, we do have numbers further down the line.

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.