 Hello and welcome to CMC Markets on Wednesday the 6th of July and this quick market update and it's been an interesting few hours for the pound we've seen significant further declines new 31 year lows on the pound against the dollar and also new multi-year lows for the pound against the Japanese yen and I think the big question now is given the sharpness of the declines in the pound against both of these currencies as to whether or not we can expect to see any further losses over the course of the next few days and I think this is when technical analysis can come in quite handy because certainly the structure of the declines that we've seen over the course of the past few days does appear to suggest that there is potential for further losses and ultimately that's not going to be good news I think for the Federal Reserve or for that matter for the Bank of Japan because ultimately the last thing both of these central banks one is a stronger currency relative to the pound but that looks to be what we could well see in the aftermath of this Brexit vote in the aftermath of the vote we got a slide in the pound down to around about 132 we saw a subsequent rebound to 135 and then we got a little bit of sideways price action as as shown by this chart here now this looks a very much like a potential flag or pennant and it's important to understand the rules surrounding flags or pennants and I'm going to go through them now very very briefly right here what we've got is they tend to be they tend to be formed over a fairly short time period and the moves leading up to them tend to be fairly explosive and then when they break out the move higher or lower also tends to be fairly explosive and they tend to be continuation patterns and that's essentially what we're seeing here right now so this is basically how they are constructed either up or down you get a period of price conjection followed by a sharp move in one direction sideways price movement which is essentially what we've got and then we've got a breakout and a move sharply again in the original direction of the price move so it's this move here and the prior move which we're particularly interested in and the measuring objective with respect to these patterns is is designed by measuring the height of the original move similar sort of story with respect to flags again here the measuring objective is the move higher sideways consolidation in a move higher or lower so if we take this to it's obvious extreme here when we look at the pound against the dollar we can see the bottom of the move which was around about 131 20 130 150 you can break it down in any any way you so choose you can break it down in terms of a potential triangle breakout if you so wish there's nothing to suggest that you cannot do that just by basically taking this series of lows through here and then measuring it through these series of highs through here ultimately the measuring objective is slightly different but certainly in the context of the move down from 148 to 135 you're talking about potentially you know 12 12 between 10 and 13 big figures down from 131 that takes you down to around about 120 now what would what would negate what would negate this particular down move well what would negate it would be a move back through 131 and a half back towards 132 so ultimately that is that it that is your ultimate stop loss but taking this move dear move here projecting it downwards through here does suggest that we could we'll see further losses over the course of the next few days and again it's a similar story with respect to the sterling yen chart if we look at sterling yen again we've seen a slow gradual down move particularly if you if you take it out even further all the way through here the sharp down move here then the sideways consolidation followed by another sharp down move through here so again if we measure this move lower as long as we stay above 130 sorry as long as we stay below 133 75 which is this area of support through here then the potential for further losses does bring us quite a bit lower towards that 120 area so basically what we're looking at in the short to medium term while we are below the resistance levels of 133 75 on sterling yen and 131 51 32 on cable is a move to 120 for both sterling yen and cable word of warning is though that the Bank of Japan is going to have significant concerns about a significant appreciation in the yen against the pound but also a significant appreciation in the yen against the US dollar so for clues with respect to that be certainly keeping an eye on this 100 level in dollar yen if we see further declines there towards 95 that could also help filter through in terms of a decline in sterling yen so that's it for this week once again thanks very much for listening this is Michael Houston talking to you from CMC markets