Why the pound may be about to take a beating

The dollar has been sick for a while, but could be about to make a recovery. And with the Bank of England unlikely to raise interest rates, sterling could be in for a pounding – especially against the euro.

In spite of widespread expectations that the dollar would revive, so far it has not. If the oil price and the gold price are anything to go by, recent strength of both is indicative of future dollar weakness.

As we have explained on many occasions before, one of the best technical signals is when a break-out occurs from an established range. Charts that develop into ranges offer the potential investor a low risk and reliable signal. The one-year chart for the dollar index has clearly been in such a range since March. The price action for the dollar index these last four days has been below the half-way level of that trading range. A reversal of the dollar's fortunes cannot take place unless that trading range is exceeded to the upside. A break below the low of the trading range would be a disastrous message and would cause dollar selling to accelerate. Anyone who is long dollar should consider the low of the trading range as their stop loss and sell dollars on weakness. Anyone who is short dollar should consider the high of the range as the stop loss to purchase dollars on strength. The eventual resolution of this range will unquestionably take place but the unknown factor is when so we patiently watch and wait.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.