Talking Points
- The Aroon Oscillator indicates it’s uncommon for the GBPUSD to experience uninterrupted trends lasting more than 3 months
- The pair is currently in carving out a 6-month down-trend since July
- Download the Aroon Oscillator Strategy to gauge trend strength on the Tradestation Marketscope 2.0 platform for free, here
The Aroon Oscillator is an indicator that identifies the strength of trends. Using this indicator on GBPUSD, it is clear that persistent trends – bullish or bearish – beyond three months are unusual. This measure of ‘momentum’ even held true during the Great Financial Crisis (GFC) of 2008 when the Sterling depreciated sharply against the Dollar from its peak around 2.1100 in November of 2007 down to 1.3500 by January 2009. Further, despite the UK’s economic recovery (GDP, employment, inflation) the pair has maintained a regular balance of up and down trends which has also kept the pair from returning the levels it held before the crisis.
Below, the Aroon Oscillator shows GBPUSD has held an uninterrupted downtrend since July 2014 – a six month trend that is twice the length of the average trend period. Given the pair is still in a strong downtrend as defined by the indicator, we have to look back to the swing low back on July 9, 2013 (1.4812) to find the next meaningful support level. Should the Cable break this level, it will be trading at a 5-year low. With the BoE now offering up a more dovish tone and the market skeptical of a hike in 2015, any rate pressure from the Fed this year can push the market through that boundary.
Daily Chart Created Using FXCM Tradestation Marketscope 2.0
