Looking at the weekly futures continuation chart of the British Pound, you can see it saw a significant rally of 27% from its September 2022 low to its recent high in July 2023. However, this bullish trend has hit a snag and has been selling off for the past two months. Normally, given the strong trend that preceded this downward move, I would be optimistic of a return to recent highs. However, this two month sell-off gives me pause. Here’s why:

1. This downward move has its dominant ABCD pattern with a shallow retracement (less than 50%) and 5:2 right-handed skewing. This supports a bearish trend with strong momentum.
2. According to a set of moving averages that I follow, this downward move turned bearish on its daily chart on September 12th.
3. Seasonally, the Pound traditionally sees weakness into mid-October.
4. Finally, we are seeing some weekly chart damage. Price action is currently below its 34 EMA wave, which typically acts as support in bullish markets. We are also closing in on breaking 1.2314, which is a recent swing low on the weekly uptrend. This would cause a reversal in higher highs and higher lows.

But even though there appears to be continued weakness ahead, there are some important lower zones to watch. These zones could provide good places to take some profits on any existing short positions. They could also provide some potential buying opportunities. Where are these zones?

1. Light Support Zone (Yellow): located between 1.2320 and 1.2230.
2. Medium Support Zone (Gray): located between 1.2230 and 1.2135.
3. Strong Support Zone (Green): located between 1.2135 and 1.2025.

The first two zones contain a combination of Fib extensions based off four ABCD patterns. Alone, clusters of Fib extensions from multiple ABCD patterns often serve as support in downward trending markets. But, combined with other indicators, a zone can gain additional strength. That’s what we have in zone 3. In addition to some Fib clusters, we also have a volume profile ledge between 1.2140 and 1.2025. This area could see buyers come back again. Regardless of the zone, the most important thing to remember is to look for additional clues when price action is trading inside one. That’s what I will be looking for in the weeks ahead. Look for additional updates in the coming weeks on this hot market.