Consolidaton Continues On GBP/USD

As anticipated, the GBP/USD consolidated around the 1.9750/1.9800 levels in a fairly orderly fashion. The open today was a bit unusual and caught many traders who trade shorter time frames by surprise. Those of us who swing trade were left with no change in our positions.

We are still long on this pair in our current trade. Last week left us with no change in our technical indicators, other than to confirm the consolidation on the short term uptrend we posted last week. We did receive further confirmation that we should be long fundamentally with the release of FXCM's COT data. Their release states:

• "The idea that a double digit big figure low (probably 1,300-1,500 pips) is forming in the GBPUSD is supported by our analysis of COT data. We construct indexes that provide readings between 0 and 100 (with 0 being a bearish extreme that leads to bottoms and 100 being a bullish extreme that leads to tops). Both indexes are at 0 now, indicating that a bearish sentiment extreme has been reached and that the GBPUSD is headed higher. Also, the Composite COT (top line, a combination of speculators and commercials) is at a level that has been reached just twice before. In both instances, the GBPUSD commenced rallies of at least 1,400 pips (within 3-5 months time)."

Our hard stop is currently located at 1.9350 (trade entry was at 1.9475). If the pair should break above 1.9900 we will move our stop up to 1.9650 to guarantee a profitable trade. 1.9900 is a key level since it would break the downtrend line formed on the high of 11/09/2007. Our initial target still remains at the 2.0400 level as we are still a little too early in this trade to generate a strong trend line for support.

We can see the fib retracement levels that we should keep in mind. We are currently bouncing around the 23.6% level. Our next near term target is the 38.2% level of resistance of 2.0035. Breaking this level would be a very bullish signal because it is also the high of the last Elliot wave on 4/21/2008.

With the consolidation underway there is not much to post this week. I will make a mid-week post explaining were to find the money supply numbers that I talked about last week. These are important fundamental indicators to watch, especially before and during summer.

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