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Trade Opportunity: British Pound at Major Support


After hitting a low of 1.4625 in April, British pound futures (6B) rallied to a high of 1.5892 on the December contract.  Rallies that followed have put in lower swing highs, indicating some possible weakness. Support on the pullbacks was 1.5136--the early September low and also near support from June.

On September 25 pound futures dropped as low as 1.5129, just eclipsing support. The price was unable to close below the support though and on September 28 the price is still managing to hold its ground in the support zone.

There are opportunities for both long and short trades here. A break through support points toward further declines, while a bounce off support signals a rally toward resistance (descending trendline) in the 1.55 region.  1.56 is the aggressive target right below the September high of 1.5650.

Figure 1. December British Pound Futures - Daily Chart

A rally above 1.5240 is the first sign of a possible pop higher. A rally above the September 25 high of 1.5255 would help confirm. 

On the other hand, a drop back below 1.5129 warns of a further decline.  If the price breaks support the height of the range/triangle gives a target of 1.438. Given the rally earlier in the year, assuming the price will fall to a new major low is likely too aggressive. There's a good possibility significant support will develop above the former low, therefore, a more reasonable target is the 1.48 region.

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