Great Graphic: Head and Shoulders Bottom in Sterling?

This Great Graphic was created on Bloomberg and shows a possible head and shoulders bottom in sterling. In order to confirm the pattern, a convincing move above $1.5200 is needed. 

The importance of such patterns is the measuring objective. The distance from the head to the neckline is about four cents. That would suggest a minimum objective of a four cent advance above the neckline or around $1.56.

The $1.56 area also corresponds with a 50% retracement of the decline here in Q1 from the multi-year high reached on Jan 2 just shy of $1.64 to the low near $1.4830 set on March 12. In addition, the constructive technical outlook is also supported by the 5-day moving average crossing above the 20-day for the first time since early January. Momentum indicators also suggest scope for additional corrective gains.

We have often found that sterling leads the euro. Consider this year that sterling's peak was on Jan 2, while the euro peaked on Feb 1. Sterling bottomed on March 12 and the euro put in the low here in Q1 earlier this week (March 19). The constructive technical outlook for sterling dovetails with our view that once the immediate Cyprus uncertainty is lifted, the euro is likely to be squeezed higher.

Great Graphic: Head and Shoulders Bottom in Sterling? Great Graphic:  Head and Shoulders Bottom in Sterling? Reviewed by Marc Chandler on March 22, 2013 Rating: 5
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