Cable(GBPUSD) is this a major breakout ?

- Shorter-term GBPUSD possibly heading for move to 1.7000/1.7150 in next few weeks, if current break up holds.
- Longer-term GBPUSD hugely pivotal at 1.7000/1.7150. I currently believe this area will cap it, however a clear break above could see move to 1.9000s through 2011 and 2012.

 The long-term GBPUSD FX (Cable to us old timers) chart appears to have made a significant break up. Recent weeks have seen the pair swinging about wildly as it tried to confirm and test what appears to be a major reversal triangle break out. The push higher of the past 2 days appears to me to confirm that we may have a valid triangle breakout here. In addition to this, the internal pattern, formed over the past 2 years appears to be another good old 'Cup and Handle' pattern.  - There is even the possibility of a major 'Double-Bottom' pattern, which would be confirmed over 1.7000. - The most significant feature however of this for me, is the breaking of the sequence of falling 'Significant Peaks' since the high in Nov 2007. All these signs point towards this being a major breakout of a significant nature. - (See Upper chart)

The big level is going to be around 1.7000/1.7150. The second chart shows how pivotal this level has been over the past 20 years. There has been 8 major approaches at this level from both below and above. The first being the month after the UK's exit from the ERM in 1992 (I remember that well). On that occasion, GBPUSD spent a month dancing with the 1.7000 level, before spectacularly breaking lower through it.  Since then this level has on 5 occasions acted as key resistance/support leading to significant retraces,and on 2 occasions it has broken through spectacularly. (Though it is worth noting that both occasions of spectacular breakthroughs on the longer-term charts, saw the initial approaches on daily charts rejected for 4 and 2 weeks respectively). - Also worth noting is that the 200 weeks Simple Moving Average is currently at 1.7096. The 200 week sma has also often acted in a pivotal nature over the past 20 years (See third chart below). The confluence of this with the pivotal zone at 1.7000/1.7150 only increases the significance of this area: On the one hand I believe it may act as a magnet in coming weeks, on the other hand it will act as a major hurdle and possibly a barrier if it gets there.

 

Is this the major bottom that the patterns above possibly suggest?

If I am honest, and counter to what I have written above, I don't think it is, or rather I think the balance of probability is against it. -  I believe 1.7000/1.7150 is likely to check the advance (though can not exclude a stop induced spike). This area is such a key level, that I doubt GBPUSD will have the head of steam needed to clear it. - I also have one or two reservations about the patterns I have described above: I prefer major reversal patterns to be contextually small relative to the major moves preceding them. If one looks at the major 'Head and Shoulder' pattern at the top from 2006 - 2008, this was relatively small compared to the move before it. Whereas the bottoming patterns I have identified are huge in time and price relative to the prior move. Further, I am a touch dubious of the 'Cup and Handle' pattern due to its clear 'V' shaped pattern. - Nonetheless, the break of the 'Significant Peaks' is to me hugely important, though it does point to the downtrend being over (for now at least), it does not signify a definite change to a longer-term uptrend, rather it suggests either a move to an uptrend or a move to a large longer-term sideways range.

In truth, time will tell, the patterns suggest a real possibility of a major advance, my feeling is that 1.7000/1.7150 may be a hurdle too far. - However, if GBPUSD can make a clear break through that pivotal level, then there is a real possibility that GBPUSD is looking for a continued move into the 1.9000s.

Shorter-term, barring a major new shock, or a real surprise budget, I believe the odds of a continued move towards 1.7000 over the next few/several weeks is strong, caveat - staying above the 1.6000 area.

One final point: At my last bank we called 'GBPUSD' (and 'Short Sterling' for that matter) 'The Widowmaker'. There was a reason for that.... I'l leave you on that note.....