Sterling is having an interesting day. It fell in the face of the US dollar’s bounce but has recovered fully. It has not yet traded above yesterday’s high (~$1.2510) but it may. It does appear to be tracing out a hammer in Japanese candle stick terms.
Demand emerged (support) near the 50% retracement objective of advance off the January 16 dip below $1.20. That retracement was $1.2346 and today’s low was one hundredth of a penny above it.
Recall sterling staged a key reversal on February 2. It made a new high for the move and then closed below the previous day’s low. The close is key to such patterns, and some may have waited for the close to confirm the reversal. According to Bloomberg sterling closed at $1.2518 on February 2. The signal was valid as sterling fell almost 1.5% to today’s low.
If the bullish technical signal now is sustained, what does it mean? The Great Graphic here from Bloomberg shows the Fibonacci retracements of the leg down that began with the key reversal on February 2. The 50% retracement is found a little below $1.2530, which also corresponds to the five-day moving average, which sterling has not closed above since February 1. The 61.8% retracement is near $1.2570. A move above there may signal not only a retest on the February 2 high, but also maybe another run toward $1.28 which houses several important technical objectives.