British pound continues to falter against safety currency Yen

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Alan Penny

31 July 2019

3 min read

forex uk

The British pound continues to look very soft against anything related to safety at this point, which makes quite a bit of sense considering that the Brexit is still a huge mess, and we don’t really have any idea if things are going to get any better anytime soon. The Brexit of course is nothing but a huge mess, and it’s very unlikely that the situation gets any better in the short term. Because of this, I think that any chance you get to sell the British pound you should take advantage of it.

Oversold condition

gbp/jpy chart

GBP/JPY

The oversold condition that we find ourselves in right now could provide a bit of a bounce, but that bounce should be a nice selling opportunity above. Marked on the chart you will see the ¥135 level in a rectangle. This is an area that I believe will cause quite a bit of resistance, and quite frankly I would love to see an attempt to get back to that area. Not only do we have the cluster of trading and the large, round, psychologically significant figure, but we also have the 20 day EMA sloping downward and through that level at the same time. In other words, there’s a multitude of reasons to think that there is selling pressure in that area.

With this, even though we are in an oversold condition I do not have any interest in trying to buy this pair, because quite frankly this is a market that is negative for a reason. That being said, if we do break down below here we could go down to the ¥131 level, which is the 100% Fibonacci retracement level. I do think that will eventually be the target, but we may get an opportunity to sell from higher levels.

It’s going to be a matter of patience

While I did make a significant gain from shorting this pair previously, it did get a bit oversold so I had to take profit. That being the case, it is going to take a certain amount of retracement to make this an attractive trait opportunity. As far as trying to buy this market, it’s almost impossible considering that the British pound has been beaten up so much, and quite frankly it’s probably going to have even more bearish pressure over the longer-term. There is no sign of some type of breakthrough in negotiation between the United Kingdom and the European Union, so with that in mind it’s simply a matter of waiting for the rally to take advantage of what is a strong downtrend.

Granted, there is a massive amount of support underneath someday, but it’s nowhere near here. This market will continue to break down until we get the final “flush lower” from the “no deal Brexit.” Once that happens, we will get some stability and then the market will turn around completely and become a great investment. That being said though, we are nowhere near those days so obviously we are looking for short-term rallies to take advantage of.

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Written By
Alan Penny

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