- Testing 50% Fibonacci retracement levels
- Market waits tentatively on potential Brexit resolution
- Trading on rumors
There have been a lot of rumors and headlines over the last several days involving Brexit. This has a major influence on the algo-driven British pound/US dollar pair. As we have seen for quite some time, the market will react to every tweet, rumor, and headline. At this point, it looks likely that the latest rumors have set the British pound on fire.
Major confluence of resistance
The British pound is currently at a major confluence of resistance. The 50% Fibonacci retracement level is being tested, which is obviously an area that will attract a lot of attention. Beyond that, the 1.2750 level has been crucial support and resistance more than once. As the market approaches that area, it’s very unlikely to simply shoot through. All things being equal, the market has shot straight through the ceiling as the rumor mill continues to drive a lot of hope into the market, or perhaps just simple “short-covering.”
markets wish to get some type of confirmation on all of the noise coming out of the Irish leadership, and of course Boris Johnson
The 50-week EMA is also offering resistance. At this point, the question remains whether or not there is going to be some type of deal. Recently, the market has seen an extreme amount of volatility and shot to the upside. Ultimately, though, the momentum will slow down as the markets wish to get some type of confirmation on all of the noise coming out of the Irish leadership, and of course Boris Johnson. While they do talk about the possibility of a trade deal being made, the reality is more uncertain.
Trading this market
There are a couple of different possibilities when it comes to trading the British pound going forward. The market obviously has a lot of bullish pressure underneath suddenly, but it would only take one negative tweet to turn this market completely around. If it is an actual trend change, then waiting for a simple pullback is about the only thing you can do. You are either already long of this pair, or you are waiting for an opportunity to go long. However, if things fall apart and turn around, this market is going to fall 200 pips in the blink of an eye.
Because of this, the British pound is something you should trade very lightly, and with smaller than usual positions. However, if the market continues to go higher, then you can add to what should be a longer-term trend back towards the historical norms which are well above here – perhaps closer to the 1.60 region or so.
At this point, the British pound is oversold from a longer-term standpoint. But from the short-term standpoint, this was all based on headlines and conjecture, and no concrete evidence.
