Pound Head and Shoulders Points to Rebound: Technical Analysis

The pound is poised to rally to a one-month high versus the dollar, after forming a chart pattern called an inverted head and shoulders, according to Brown Brothers Harriman & Co.

The first shoulder formed at about $1.5950 per pound on Oct. 3, followed by the head at $1.5875 on Oct. 15, and the other shoulder at $1.5995 last week, Brown Brothers Harriman analysts led by Marc Chandler wrote in an e-mailed client note.

A rally would target $1.6360, which is “just shy” of the 38.2 percent Fibonacci retracement of the pound’s drop since reaching a five-year high of 1.7192 on July 15, according to the note. The pound bought $1.6102 at 1:27 p.m. in Tokyo.

The pound has dropped as much as 7.7 percent from the July high, after rising 14 percent against the dollar in the previous 12 months, the most among major currencies. The median estimate among analysts surveyed by Bloomberg News is for the British currency to end the year at $1.62.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency, or index.

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