For the last few months British Pound has been one of the most disliked Forex instruments around. It has been selling sharply against just about every other currency. Virtually all GBP crosses moved within close distance to historical price extremes. For the most part, slower economic recovery was blamed for that, as well as severe budget deficit. Heavy selling of Pound by UK based hedge funds was reported during this time.

Most recently, though, GBP started to show signs of recovery. Manufacturing output in UK rose at a fast pace, as reported for March. Revised data for the last quarter of last year suggests more robust recovery than previously estimated. These positive news helped develop good size rallies on intermediate term charts of British Pound, and even daily in some pairs. Extent of this advance varied, but was broad and against all currencies. In fact, GBP appreciated enough, to mark possible turning point within longer term trades on technical basis.

The best performing cross has been no doubt GBP-JPY, the beast. This pair gained over 1000 pips last month, in a steady move, which accelerated recently. From the low 132 price climbed to just under 144 last week, reaching latest high on daily chart. Typically previous highs/lows are reaction points where resistance/support is encountered. Breaking through these levels could be seen as confirmation for developing trends. In case of GBP-JPY 144 area is such resistance.

Move above 144 would indicate that Pound recovery, at least here, is for real and 150 is not out of the question. More pragmatically, though, some pullback is very likely at this point. Correction to 139-140 seems very reasonable. That’s where support and resistance switched polarity few times before. Markets tend to test and retest previously important levels. On balance, daily chart of Pound-Yen shows early stages of possible bullish trend. All it needs is a confirmation, and it is not the only one.

Daily chart of Pound-Kiwi also indicates possible reversal of longer term trend. Here the critical are is 2.17, which must be broken before one can say for sure that trend has indeed changed. Emergence of 3 White Soldiers candlestick pattern is a positive sign, especially on daily chart. This happened before, in late February. At that time formation failed and GBP-NZD made new low, which increases probability for this one to be successful. Just like the beast, some pullback is very likely here, but move above 2.17 should be seen as positive sign with longer term bullish implications.

GBP-CHF is yet another one of Pound crosses showing early stages of reversal. Price tested latest resistance and remains very close to it. After last Thursday all CHF pairs fell under threat of additional intervention by Swiss National Bank, which is another positive sign for Pound-Swissy. One can not rely on central banks to do something or other, but in this case that would be a bonus. Even if SNB takes no additional action, chart still has bullish undertones, especially if an upside breakout happens.

To be sure, British Pound is not out of the woods yet. All of these reversal formations are in early stages and not complete. Also, speculative short Pound positions were still at an all time high in late March. That, however, might be a good sign. Trading public is generally wrong at market turning points, and excessive short positions right now would be no exception. Another GBP appreciation would likely put a “squeeze’ on these shorts, accelerating the move even more. Next couple of weeks should decide if Pound is indeed reversing or only consolidating its loses.

Wish everybody great holiday!
Mike K.