“You don’t have to be a technical analyst to see a severe breakdown of the British pound on the charts. After trading in a range from June 2009 through last month, it broke down and fell swiftly to a 10-month low vs. the US dollar. And based on a simple charting technique, it would not be a stretch to see it priced under $1.40 in the near future. Such low levels vs. the dollar are not unprecedented. A long-term chart shows it has been there on several occasions during the past 25 years with the last occurrence just one year ago (see Chart 1),” Michael Kahn Reports From Barrons.

 

Kahn goes on to say, “For historical perspective, the pound took a nosedive in early 1985 and came within a few cents of parity with the dollar, meaning one pound for a dollar . However, a zone around $1.40 per pound has provided a price floor since that time. Technically, the trend from November 2009 is down. And support, or buying interest, that existed in the trading range mentioned above is gone. The next level at which we can expect demand to pick up is in the $1.47 area using round numbers. It is derived by measuring the height of the trading range and projecting it down from the breakdown point.”

“Investors may wish to look at the CurrencyShares British Pound Sterling Trust (FXB), an exchange traded fund that tracks this market. Here, the measured objective is in the 146 area but its relative free fall over the past two weeks has left it quite extended. In other words, it has fallen too far, too fast and technical indicators such as the relative strength index suggest it is vulnerable to a bounce (see Chart 2). This, of course, is no guarantee that it is going to bounce but traders will indeed have reason to take a bullish short-term stance under such conditions,” Kahn Reports.

 

 

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The investment (FXB) seeks to track the price of the British Pound Sterling, net of trust expenses. The fund seeks to reflect the price of the British Pound Sterling. The sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market. The fund is nondiversified.

 

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