18 month trough or 20 week forthcoming in GBPUSD?

First, lets look at the longer term picture for cable. Taking the 2009 low as a prominent trough (which it undoubtedly was!) a phasing analysis in ST is performed. One of the immediate aspects of this pair is its outstanding cyclicity, showing three clear 18 month cycles within the first 54 month cycle of the 9 year. Generally forex pairs are easier to phase because of the huge liquidity and round the clock trading. There are two different analysis I am tracking here, one that places an 18 month trough in the next week or so and the other with a 20 week. There is some ambiguity in both scenarios (as always!). Lets look at both and consider the evidence.

18 Month Trough Scenario

GBPUSD_18mThis is the long term picture for GBPUSD, showing the consistent 18 month nominal cycle running at a current average of around 17.8 months. The 54 month low is placed in July 2013 and the subsequent 40 week trough in March 2014. Note the 54 month VTL has been breached indicating the peak of the 9 year cycle formed around June 2014.

GBPUSD_18m_2Zooming into the current 18 month cycle we can see more detail. The main ambiguity of this analysis and aspect which prevents total confidence is the placement of the last 20 week trough. The breakdown was so bearish it is very hard to pinpoint the correct placement. My best estimate has been pinned in late August. There are a few other candidates. However this still does not remove the fact that the 40 week is running very long at around 43 weeks if we are expecting an 18 month, my main doubt for this phasing.

GBPUSD_18m_3Looking at the current 80 day cycle it is pretty clear. I think we are in the last 20 day cycle of this current 80 day and have just broken the low of early January. This antipates a large trough in the next few days or next week sometime. A break of the 20 day VTL looks to be a good action signal for a long.

20 Week Trough Scenario

The alternative scenario assumes that the 18 month trough formed already and is straddled, indicating a very bearish future for the pound. Here is the long term chart, the main difference is the placement of the 54 month trough in March 2013 instead of July 2013. This gives a more balanced look to the 40 week cycle but places a straddled 18 month in September 2014.GBPUSD_20w_1Note here that the 54 month VTL is also breached.


Looking at the most recent 18 month cycle the placement of the 54 month trough does require some artistic licence as the trough in July 2013 was technically lower. However, this placement does look good to me for the following reasons:

  • The 40 week cycle is more consistent with the 40 week average over the last few years.
  • The 18 month trough (straddled) passed through the 18 month FLD, returned to touch it then collapsed.
  • The 18 month trough is the most powerful move up in the very bearish breakdown of 2014 and into 2015 so makes a good candidate.

GBPUSD_20w_3Moving into the latest 80 day it is clear that the analysis is exactly the same as the 18 month scenario above! This is the beauty of trading hurst cycles of course, you can be wrong about the magnitude but less likely to be wrong about the direction. This phasing again places a large trough in the next week or so and an entry on a cross of the 20 day VTL or FLD looks good!

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