2022 is shaping up as a year to remember! Since plummeting the first 9 months of the year to reach fresh all-time lows, the British pound has staged an impressive recovery heading into the year end. Long-term bullish divergence (RSI) and the potential yearly hammer formation hint of a possible completion of a clear 5-wave bear campaign from the "Great Recession" highs near the key psychological 2 threshold.
While the composition of the latest 3-month rally resembles an unfinished recovery that could highlight a major base in the 1.05 region, near-term psychology has shifted downward as of late. In fact, since providing key support towards the end of the rally into the 1.24's, the 10-day moving average has reverted as resistance, rejecting bulls twice roughly a week ago. More importantly, the lack of conviction by bulls is more concerning, managing only two one-day counter-rallies since regressing mid-December when the FOMC signalled a more hawkish tone. Moreover, the key 200-day MA, which too supported a few weeks ago is now potentially capping price-action near 1.2070, but at the time of this writing is still too early to call.
The prognosis heading into the new year would greatly improve by clearing the 200-day MA to re-open the 10 & 20-day MA's, above which would go a long way in determining a possible higher base in the 1.20 region. That said, a 3-wave corrective or zig-zag correction is more likely to form given the lack of meaningful corrective price-action since falsely breaking below 1.05. This is likely to start in the 1.19 region first, especially if the 200-day caps immediately and 1.20 is lost to the downside.
There are measured move equality targets near 1.19 as well as the key 25% retracement (of the entire rebound) and rising 50-day MA. At that point oversold daily readings are likely to aid a potential wave 2 correction within an ongoing 3-wave down towards the targeted 1.1650 region, where former support, the 100-day MA and key 38.2% retracement all lie.
If, bulls are able to successfully defend the 1.19/1.20 region and re-shift momentum through the 10 & 20-day MA's, however, then the December highs are likely to be expose. Due to the close proximity to the psychological 1.25 area, bears are likely to pause further strength that is unless bull momentum has been clearly re-establish in which case an extension to 1.2750 (key Fib) then possibly 1.30 or 1.35.
If, bulls are unable to forge a recovery by 1.1650, however, then a drop towards 1.14 (50% retrace) ahead of 1.1160 is entirely possible. Below the latter would greatly damage near-term momentum and could expose 1.05 ahead of the all-time lows at 1.0357. Any weakness from there could present a potential once in a lifetime buying opportunity given the magnitude of the latest recovery. But, that is way too premature to call and would have to be re-assesed accordingly to match momentum at that point.
