Pound Continues To Lead Intensification Of Greece Crisis

The cycle of accumulation and distribution defines cause (building) for the British pound (NYSE:FXB).

The British pound, despite a bullish oscillation of leverage and sentiment (see leverage) that continues to lead an intensification of the Greece crisis, will likely resume its mark down once the dollar jumps the creek of cause. Traders looking to anticipate changes in the pound; therefore, should be following cause building the US Dollar Index. Further discussion of the dollar's technical setup can be found in the most recent Review of the US Dollar Index.

Trend

Positive trend oscillators have defined an up impulse and countertrend rally within cause from 147.78 to 150.22 since the first week of May (chart 1). The bulls control the trend until this impulse is reversed.

A weekly close above 154.50 maintains the countertrend rally. A weekly close below 137.50 breaks the ice of cause and denotes the return of mark down. This technical breakdown signals to Americans looking to buying London properties at lower prices to prepare their shopping lists. Growing fear and time will benefit American buyers.

Chart 1


Leverage

The flow of leverage defines a bear phase since August 2014 (chart 2). DI2's down impulse from the April high defines downtick supporting the rally within cause. A DI2 close above this high (April 2015) confirms continuation of the bear. A DI2 close below the August 2014 congestion reverse the phase.

A diffusion index (DI) of -4% defines mild distribution and growing bearish bias. A capitulation index (CAP) of 24%, a neutral reading, supports DI's message (chart 2A). This setup, the flow of leverage and sentiment from fear to complacency that favors continuation of the rally, tightens risk management for bears that did not reverse shorts after May's bullish crossover (see trend).

Chart 2


Chart 2A


Negative leverage oscillators defines a down impulse that opposes the bear phase and supports the bull trend (chart 3). The probability of short-term profit-taking declines as overbought (OB) unwinds.

Chart 3


Time/Cycle

The 5-year seasonal cycle defines weakness until the first week of July (chart 4). Seasonal weakness into the summer transition could be minimized by the flow of leverage and sentiment from fear to complacency. This flow is defined by the capitulation index (see leverage).

Chart 4