Pound gearing up for a reversal?

The UK has had to deal with recessionary fears, sky high energy prices, a cost-of-living crisis, and a breakdown in political leadership. This has caused the GBP to fall to lows not seen since the last century.

The British economy has also had to deal with a potential liquidity crisis caused by some of the large UK retirement funds almost bringing down the UK economy however with some support from the Bank of England the situation has in the short term been resolved.  The political pressures have also eased somewhat with Liz Truss stepping down and Rishi Sunak taking over the role of Prime Minister, which may further support the potential for a reversal and show o strength in the pound.

With the price so beaten down at some stage it will have to turn around. The question is this reversal about to occur?

Technical Analysis

On the weekly chart, the price has been ranging between 1.4369 and 1.1985. Earlier this year the price dropped below the bottom of the range for second time with the only other time being the initial stages of the pandemic. The lower bounds of the range present a potential target if the reversal is validated. The price has finally started higher and the strength of the weekly candles and the volume supporting the price action indicates that supply is being depleted. The risk for a potential reversal is just how aggressive the long-term moving averages are to the sell side. Both the 50- and 200-week moving averages are still pushing to the downside.

The daily chart shows an interesting picture. The price of the pair is clearly coiling and almost ready to break out of its consolidation. If the price can break out it may provide a short-term target of 1.19853 may provide a potential price to take profit.

With volatility seemingly settling around the UK’s economy, the potential for a reversal remains, which may only improve the prospects for the Pound.