Fibonacci levels as movement targets

Interesting historical analogies sometimes arise in the market. The last strong fall of the pound, similar to the fall of the last year, was recorded in 1992. By the way, it also began in August. The pound fell by 6050 points from 2.0110 to 1.4060. At first, the pound rapidly plummeted below the 100-weeks average (yellow in Fig.1) to 1.6815, then it corrected to this average by more than 1000 pips to 1.8050, and then continued falling. That means that the pair broke through the strong level at once, corrected to it and then continued falling down from it, like from the resistance.

The goals of the market movement are often Fibo levels 123.6%, 150% and 161.8% from the first rise or fall. If we "stretch" the Fibo grid by taking the first fall of 2.0110-1.6815 as 100%, we get the following levels: 123.6% - 1.6040, 150% - 1.5175, 161.8% - 1.4775. Then the level of 123.6% was broken through on the move, the level of 150% acted as local support, from which the price corrected again and fell below the level of 161.8% to 1.4060. In other words, these levels did not work well, when the volatility was high during the collapse. But the most interesting began later.

In the spring of 1993 there was a strong correction and it ended at the level of 123.6% from the fall and the 50-week average. This point is marked with a blue arrow on the chart. The fall continued. First, the price fell to the 150% Fibo level at 1.5175, and then to 161.8% Fibo at 1.4775. The low was 1.4640. And a months-long consolidation began near that level. The level of 1.4775, of course, was broken through by tails, but each time it was false. It was broken at the maximum by 225 points. On the daily chart, I have counted 14 significant bounces from or under that level. The red arrows in Figure 1.

The 150% Fibo level at 1.5175 was a frequent resistance. This consolidation ended with the formation of a reversal triangle, which finally broke through upwards, and a strong rally began. Where did it go? It is easy to guess three times. It reached the level of 123.6%. Of course, it was also broken through at the beginning, but it did not go too far and again began a consolidation that lasted for many months. resistance at least seven times. As a result, the price slid again to the same levels 150% and 161.8% (almost didn't reach the last one). And the next growth started from under 150%. Where to this time? To the level of 100% Fibo. And the multi-month consolidation started at this level as well.

Fig. 1. Weekly chart of GBPUSD. Operation of the Fibo grid.

The conclusions are as follows. After the big collapse, the market has been in relative range trading for many years, where the levels of 100, 123.6, 150 and 161.8% from the first fall have very often acted as local supports or resistances. And the main thing here is the levels. We don't know if the history with the range will repeat itself, or maybe a structural crisis will make the market continue its collapse, or, on the contrary, a strong rise will begin, but such levels have already begun to work.

Fig. 2. The current state of the GBPUSD pair and its Fibo levels.

Last year the pound dropped 6600 pips from 2.0150 to 1.3500. The first fall was to 1.7445, where it corrected to the 50-weeks average. This time the pound did not reach the 100-weeks, but the correction amounted to the same 1210 points. It was 1225 in 1992. I stretched out the Fibo grid to this wave and got the levels of 123.6% - 1.6800, 150% - 1.6090 and 161.8% - 1.5770. These levels also acted as local supports and resistances in the process of falling last year. But the market also fell below the level of 161.8%. There was a strong correction this spring. It was much stronger than the 1993 correction, when the market was up 23% from the fall. Now the market corrected by 50% from the fall, but most interestingly, the level of 123.6% was broken only by the tail and turned down. This time, 50% and 123.6% coincided around 1.6800. And the high was at 1.7040, at the 100-week average.

Fig. 3. The current state of the GBPUSD pair and its Fibo levels. Approximation.

From the level of 123.6% the pound descended to 150% at 1.6090. The low was at 1.6112. It rebounded up to the level of 123.6 (did not reach the 50-point level) and fell back, but now to the level of 161.8% at 1.5770. It might bounce up from here. If history repeats, the pound might have a consolidation here, between 161.8% at 1.5770 and 150% at 1.6090 or a little bit higher. The 50-day average might be the resistance. So far, history has repeated itself and the levels worked. Let's see how the market decides next.