So far this year, the pound has made significant progress to the upside, extending the recovery that has been in play since September 2022.
This is when the pound experienced massive capitulation and hit levels not seen since 1985, at 1.05. Crowds were extremely bearish and pessimistic back then, and normally this type of sentiment occurs at the end of big cycles. So from that view, I am not surprised that the pound has recovered.
We see a nice rally so far, a move that has also been in play due to the fact that inflation in the UK is much longer and stronger compared to some other major countries. From an Elliott wave perspective, I see the price coming higher to the upper side of a wedge, so there can be some pullbacks if the pair does not manage to break the 1.32-1.34 area. For some retracement, we, of course need some major catalyst, and possibly this can be the inflation that seems to be cooling down on the latest reports.
The COT data can also be important here, where we see Large speculators moving into extreme levels, so if we respect the past cycles, there can be a new shift in flows that can slow down bulls on cable. But only temporary, I think that from an EW perspective, the pair reached an important low in 2022 and that after a setback, cable can resume much higher. Very strong support on the next larger pullback can be at 1.2-1.25..
Source Barchart
Grega