Tuesday, October 6, 2009

British Pound Continues to Lag the Euro's Advance; October 6, 2009

Above are two 4 hour charts, one of the EUR/USD and one of the GBP/USD. Some of you may remember a week or so ago when I mentioned that the Great British Pound (GBP) was lagging behind the euro's advance and did not confirm the euro's 1.4843 high. Now look at the two pairs. You can see that the lagging of the GBP is becoming more severe, and that even though the euro has rallied 300 pips from the low, the GBP barely rallied 100 pips and can't even make a new high from last week!

This divergence tells me the EUR/USD's uptrend is severely exhausting as it's rising almost on its own. This is also pumping up the stock market as well so keep that in mind. Major divergences occur at major market tops. I expect this is one of those divergences occurring at the EUR/USD, and in effect the stock market, top. I expect to see stock market divergences form as well, i.e. S&P makes a new high but the Nasdaq and/or Russell 200 or XLF does not make a new before a big reversal.

We'll see.

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