I would like you to start with the medium-term update of Sterling Pound posted on 27 May 2009. In that post, I had suggested that we will top out close to 1.6670 and decline to 1.3300 area. The Pound stopped 9 pips below that at 1.6661 and sold off to 1.5803. On the next pull back, we attempted to sell and lost 20 pips. I informed you that I have not changed my medium term view, but we should allow for further strength to fresh highs to 1.6922. Then, on 4th August, we continued to remain bullish for a move to 1.7105 but maintained we will see a move back to 1.5800 (perhaps a lot lower!) . The high was seen on 5th August, at 1.7042, and we have closed last Friday at 1.5952. (If you wish to see how Elliot Wave Analysys was useful on the way UP, then you should start off by reading Elliott Wave Magic ).
Now, back to the future. We are quote close to the 1.5800 target and basically I believe we should now don our Bear Hat again and wait for a low risk level to sell for a potential move to 1.3300. After all, Mervyn King did say that the pound’s weakness was ‘helpful’. Now, Chancellor Darling tried to moderate that sentiment by saying they had no policy to ‘deliberately’ weaken the pound, but one hardly believes he will think a waker pound will be ‘unhelpful’
From a technical point of view, what should one do? If we first get to 1.5800, then we will have to sit on our hands a few more sessions because we want to SELL on a pull back. But suppose there were already some weak shorts, and Darling’s statements upsets them? They might start buying back their shorts and trigger a few stops. Then I think anything close to 1.6090 is where we should start building a core short position. I will try and post regular updates for the next few weeks (‘coz I will be holidays again in November). The key point to remember is when we know the trend has begun, that is when we have to be brave. Enjoy!