Pounds To Dollars Daily Chart - 4th June 2009

Pounds To Dollars Daily Chart - 4th June 2009

Yesterday’s wide spread down bar on the pounds to dollars daily chart, brought the recent rally for the UK pound to a shuddering halt, closing the day almost 300 pips lower and reinforcing the view held by many traders and currency analysts, that the pound was over bought and due for a correction. This ” correction” came from the fall in equities which in turn helped the US dollar to stage a recovery following its recent demise in the currency markets, but from a technical perspective we now need to decide whether yesterday’s bearish engulfing signal is simply the short term correction of an overbought market, or a longer term reversal of the recent bull rally that has seen the UK pound recover from the lows of 1.35 back in early 2009. To answer this question we need to analyse both the daily and ( prematurely) the weekly chart which may provide some clues.

First, the price action from yesterday has continued into this morning’s trading session ( which has seem the Bank of England maintain interest rates at 0.5% for the time being, and largely as expected by the markets ) with a further fall, despite trying to stage a recovery earlier in the trading session. The important point from yesterday’s candle is that it failed to reach the 9 day moving average, and closed some way above, which provides a positive signal that this could be a temporary reversal as the market takes a breather before moving higher. However, the counter argument to this is if we take a look at the weekly chart, which although it still has a day to run, if the price action continues into tomorrow, then we could be left with a extremely strong sell signal, with a deep and clear shooting star atop a series of wide spread up candles. Should the week close at or around the current price point of 1.62 then this looks ominous for the pound bulls, and could provide some excellent long term trend trading opportunities on the short side of the market for the dollars to pounds pair. Given that we have the above signal which now needs to be confirmed or ignored, and coupled with the fact that we have the NFP data due for release tomorrow, my suggestion is to wait until the end of the week before opening any new positions or closing out existing ones.

GBP/USD - Weekly Candle Chart For Dollars To Pounds 4th June 2009

GBP/USD - Weekly Candle Chart For Dollars To Pounds 4th June 2009

As always I have covered all the fundamental news items for the US dollar for you on the euro dollar site, and you can keep up to date with all the latest fundamental news on the economic calendar, latest currency news and live currency charts by simply following the links.  I have also included details on an excellent ECN broker.