Pound Sterling Sell-off reaching multi-decade extreme.The Pound Sterling has been in free-fall since marking a top on April 17 at 1.4413.
Weak economic and inflation readings, coupled with a soaring US Dollar have caused funds to significantly reduce their Pound long position, with commercials cashing in their sizeable short bets - and it is this activity that has caught our attention.
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On April 17th Commercial traders reported a record net short position of (63,524) contracts, scoring a Maximum Bearish 0% ranking on a 18 month relative basis.
During this 6 week selloff, we've seen this reduced by over a whopping 55,000 contracts.
In addition to ranking participant net position, we also look for extremes in their weekly activity, and 4 week activity. We can see in the above table that the 4wk change 18 month score has logged in 2 straight + 99% readings, signaling that on a relative basis, commercials have been unwinding their short position at an extreme pace.
Price reversals often begin with Extreme Commercial and Fund positions, and once price begins to reverse the preceding trend, it can cause a rapid unwind as the trend following algos are forced out into negative technicals, with the opposing side booking profits.
We went back and observed every instance where commercial 4wk change scored at 98% or better going back to 1988. We've seen this 38 times, and price distribution 20 days forward has been as follows:
Average Gain: 3.04 cents vs Average Loss: 2.5 cents for 6:5 odds in bulls favor - This is a significant improvement from baseline odds which are 1:1 over a 20day forward interval.
Extreme Move
Next we wanted to compare this recent drawdown to all 40day drawdowns going back to 1972. What we see is that the current decline of 11+ cents ranks in the 10th percentile of all 40 day drawdowns. Said another way, only 1 out 10 declines have exceeded this magnitude over a 40day interval. While this is not in itself a trigger to buy the pound, we will highlight that you have only 1 in 10 odds of this selloff continuing - not odds we are interested in taking. Rather, we are now stalking for any signs of price reversal.
Conclusion
The Pound has experienced an extreme selloff during the past 6 weeks as heavily long funds have been forced to unwind their bets into a waterfall decline. We see historically when Commercial traders are heavy buyers, that price outperforms by offering 6:5 odds in favor of bulls. We also see this current drawdown is historically at a extreme, with only 1 in 10 being more severe going back to 1972.
However, as price continues it's waterfall decline and a tightening/semi hawkish Fed on deck in 2 weeks, we do not recommend trying to catch this falling knife. Rather we are stalking here and want to see some sort of short term reversal of trend. We use a 4day adaptive channel for short term trend pivots, and will use a closing above this channel as our entry signal. As an alternative, you can also use a 2 day higher high / higher low, or a 3 day high to be printed.
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We would hedge this long with a 5 cents put spread for cost of approx 1.35 cents for 65 days. Once price moves 2 cents in your favor sell a covered call 3 cents out of the money for approx .7 cents. This will reduce the cost of your hedge to .65, while leaving your upside at 4.35 for 6.7 to 1 Risk/Reward.
If prices reverse lower below 1.30, close your short put as a stop which will still leave your R/R at 3-1.
Alchymist
Do you know the odds of each bet you make in the futures market? You can by utilizing the power of big data analytics.
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M6B1! trade ideas
GBP Trend reversalThe Great British Pound is not so great anymore. Terrible numbers hammered price down and now it also broke some critical levels.
Now that 1.3730 is out of the way I’m looking for a pullback into these levels to get ready for trend contuniation (short) on different currency pairs.
I’ll link this chart to some setups we’re seeing now.
US Dollar strength hitting GBPUSDRecent USD strength is moving commodity currencies lower. Double top and break of the swing low could signal more losses for cable to the median line.
b6i deep correction to 1.32 then biggest last rallyb6i deep correction to 1.32 then biggest last rally
GBP_F GBPUSD. Checkpoint before ECBDraghi and ECB might be the catalyst right at the collision point in a few hours.
Cable crashed preparation ...With involved in Syria War ... I doubt if GBP could break the main trendline, prepare for GBP crashed ...
Will this 2nd failed Cable Rebound ? After the mighty dropped GBP tried to pull back and rebound to safest zone but failed and deeper crashed, will this second tryout succeed or will it become another failed pullback that can cause Cable fall deeper ???
June British Pound British Pound created a bear flag on H&S drop. Downside potential target is 1.3614 at S2. RSI still has some room for more downside. Outside chance of 1.36. As long as BP stays under the 20 day MA this should continue to drop.
British pound Future Long ideaIf it doesn't break the channel . Target = Fibonacci cluster at 1.3960 and top of the channel
GBP/USD (GBP Futures CME) Buy 1.3115 (Target 1.3420)Signal:
Buy - 1.3115
Take Profit - 1.3420
Stop Loss - 1.3000
GBP SupportThis week has been brutal for the GBP, a far greater decline that i was anticipating. However we should now of found some support with the GBP futures coming back to tag the weekly 55EMA
Good luck all
Just wondering sometimes do we hold or notSometimes, it seems impossible to reach Target 2, but if you have been trading patterns
you should have your preference to take certain amount of position at each target.
As a side note, GBP/JPY hits its 38.2%(T1), USD/CAD its 38.2%(T1) and 61.8%(T2) and a lot
more. I hope to put out more ideals but time is limited... Sorry id try to bring up more in
time to come.
Refreshment on B6Finally a pattern that got some profits. The risk to reward is attractive as well if Target 2 can be achieved.
The stop has been moved to breakeven.
Conditions unchanged for GBP/USD (B6)
Hello! Been a busy week and traded late into Fri's session. I completely skipped the early session, choosing to strike after
the market settle down from Jackson hole. I may have miss some action but completely fine as any trade i try to take
will be more of a gamble then trading.
For now, the B6 started a rally after being oversold. I've mentioned that i'm not keen to short unless it rallies. Now, i'm presented
with the opportunity. I am targeting a larger bearish Cypher pattern, and i'm looking to trade intraday with pullbacks on the
1hr chart. For that, i'm going to present another ideal tommorow before the European Session.
At times, it is quite tough to trade opposite of your planned position, which is contrary to normal day to day decision you make in
life and is normal to feel unsettled. But if you are not comfortable with contrarian ideals, skip it. Don't think about it!
Pattern intact on 6B
The Cypher pattern i was looking on B6 remains intact as it nicely stays between 121.4% to 1618.8%.
The trade ideal is the same just some updates on the chart itself.
