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Technical analysis: GBP/USD

After being fairly indecisive for the four months between May 2011 and August 2011, sterling started a relatively sharp declining phase against the US dollar on 18 August 2011. Looking at the chart below, we see that the price was still far above the Ichimoku Kinko Hyo cloud at that stage.

Click to expand chart

By 5 September, it had dropped right through the Ichimoku cloud and closed well below the cloud at 1.60981. Since then it has been down all the way, except for the last few days, during which we have seen a mini bull run.

Although the price is currently trading slightly above the red Tenkan Sen line, confirming a short-term bull run, it is too early to talk about any significant price increase. The European debt crisis is still lingering on with no apparent end in sight. This also negatively affects GBP and, unless a small miracle happens soon, it is unlikely that we will see a major upsurge in the price of the pound in the short term.

If we closely study the chart, we will see that the price is now far below the Ichimoku cloud, confirming that we are in a bear phase. Both the blue Kijun Sen and red Tenkan Sen lines are also below the cloud, acting as confirmation signals. The green Chinkou Span is far below the price of 26 periods ago, which further confirms that a bear run is indeed underway.

Any close below the recent low of 1.53264 that we saw on 22 September could be the beginning of new lows and could therefore be a good entry point for short trades. Long trades are only advisable for day traders who cash in on relatively small upsurges in the price at that moment.

Medium-term traders should wait for the price to emerge upwards from the Ichimoku cloud, which is very far away indeed right now.

Published: 29 September 2011

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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