Once the darling of directional speculators, the British Pound has traded sideways in 2008. However, a big move is brewing. Technical factors indicate that the Pound is in the early stages of a bull move that could exceed 2.04 by the middle of July.
Bigger picture, a 5 wave advance from 1.7047 is complete at 2.1160. Therefore, a large 3 wave correction is underway from 2.1160. The first leg of that correction (A) is complete at 1.9337. We previously favored the idea that the B wave top was in place at 2.0397 but the way in which the decline has unfolded from there gives more weight to the alternate count; that treats wave B as a complex correction that will not end until above 2.0397. The rally should be strong. Most final legs of corrections are strong moves and serve to convince the majority of market participants that the previous trend (in this case, up) is back underway.
Note: Wave A took 8 weeks. C waves are often similar in time to their wave A counterparts. If a B wave low is in place this week, then the GBPUSD is likely to exceed 2.04 by the middle of July.
The idea that a double digit big figure low (probably 1,300-1,500 pips) is forming in the GBPUSD is supported by our analysis of COT data. We construct indexes that provide readings between 0 and 100 (with 0 being a bearish extreme that leads to bottoms and 100 being a bullish extreme that leads to tops). Both indexes are at 0 now, indicating that a bearish sentiment extreme has been reached and that the GBPUSD is headed higher. Also, the Composite COT (top line, a combination of speculators and commercials) is at a level that has been reached just twice before. In both instances, the GBPUSD commenced rallies of at least 1,400 pips (within 3-5 months time).