Since my last update, the GBP is down 10% against the USD, taking the price to levels last traded in 1984/1985.
Why is this happening? We can all speculate and try and find meaning. What matters is that it is happening, and as investors/traders, we want to position ourselves to profit.
How significant is this weakness from a technical analysis perspective? Very!
Below I have the monthly timeframe.
The weakness since May has seen the price break through the following levels:
- The low of October 2016, which previously held strong and caused a rise of 20%.
- The major round number of 1.2000, which held as support since 2016.
- The spike low of March 2020 following CV19 which caused a 25% bull reversal.
The bigger picture is that the 22% move down since the high of last year has taken the price out of seven years of consolidation.
If this breakdown holds, we can expect the price to freefall towards the 1985 low of 0.8000.
In such a case, short sellers, particularly those who understand how to hold and compound, would be rewarded with a hugely profitable period ahead.
My stance, for now, is to wait for further weakness and the confirmation of a bear trend continuation.
Why? Jumping in now leaves me open to a fake breakout where price triggers me into a position but reverses back into long-term consolidation. Fake breakouts are commonplace. The consequence is a loss that could be easily avoided with some patience.
By applying patience, I reduce the chances of entering in on a fake breakout and increase the probability of entering a bear trend.
I will then compound on further breakouts to accelerate the profit phase.
I have a short position triggered on the EURUSD, which I will update you on in my next article.
Image sourced from Shutterstock
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.