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Talking Points
- GBP/USD nearing important turn window
- Sentiment at contrarian extremes
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GBP/USD: Another Timing Relationship in the Pound
Arithmetic timing relationships derived from the time elapsed between the July 2014 high and the April 2015 low in GBP/USD have had a remarkable influence on the exchange rate over the last 7 months. To briefly recap - the June high in the pound occurred at 25% of the amount of time between the two, the August high occurred at 50% of the time elapsed between the two, the late October high occurred near 70.7% of the time between the two (Sacred Cut ratio important in the proportion of a square) and finally in November the high near 1.5500 occurred right around 75% of the amount of time between the two. As you have probably guessed I am writing about this today because we are nearing another timing relationship related to this move. Will it continue to have an influence on Cable?
The end of this week/start of next will mark 100% of the time elapsed between the July 2014 high and the April 2015 low. One thing is very different this time around in that GBP/USD is steadily declining into the turn window. All the previous reversals I mentioned came on the heels of sterling rallies within a primary downtrend. This does not mean GBP/USD cannot turn from this window in a few days, I just think it faces a bit more of a headwind, as it does not have the broader trend helping. That all said, there are also a few things pointing to a turn with the most important probably being the latest DSI figures (Daily Sentiment Index) showing bullish sentiment on the pound at less than 10% bulls. Whenever contrarian extreme DSI readings coincide with timing relationships it is often times a pretty powerful combination. Traction over 1.4700 is probably needed to confirm a meaningful turn higher, while continued weakness after the first part of next week under the April low around 1.4565 would invalidate the turn potential and set the stage for a push towards a Fibonacci attraction around 1.4300.
--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX
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