The currency strength indicator on the daily timeframe has been signalling the UK pound as strongly overbought (yellow line) and the Japanese yen (magenta line) as oversold for some time, and today has finally seen the pair move lower following last week’s extended congestion phase in the 151 area of the chart.
This period of price action was preceded with the two bar reversal, sending an intial signal of weakness following the overreaction to hawkish comments from the BOE, with wide spread price action in the up move, not supported or validated with volume. |For any such move, volumes should have been dramatically higher, a clear sign of the lack of participation by the insiders, and signal of a trap being set. The trap has now been sprung and helped lower with weak UK economic data as the new month begins.
As we can see from the currency strength indicator on the left we have some way to go, and moving to the price chart, there is little meaningful support until we reach the volume point of control at 146, and with low volume nodes in the 148/149 area, the price action should move through here with some momentum.
By Anna Coulling