Pound Consolidating Ahead of the Weekend
- British pound quiet ahead of crucial votes
- Overbought for short term
- Massive resistance barrier above
- Doubts about Brexit deal passing Parliament
The British pound has been relatively quiet during trading on Friday, ahead of the crucial Parliament vote on the Brexit deal that Boris Johnson has recently agreed to with the European Union. The UK Parliament has a history of voting against the deals, so it’s very likely that this isn’t necessarily going to be a “done deal”.
The old expression “sell the news” could come into play here. When you look at the last ten trading sessions, the market has gained 700 pips. While in and of itself it doesn’t sound particularly astonishing, when you realize that three of these sessions have been almost unchanged, then you begin to understand just how overbought this market is.
There are a plethora of indicators that you can use to determine whether the market is overbought or oversold, but sometimes the market simply goes parabolic. This is one of those times that pretty much any indicator you lay upon the chart will give you the same oversold condition.
There is significant resistance in the form of the 1.30 level above, so don’t be surprised at all to see this market pull back from there. If the UK parliament vote against the deal, and it almost certainly will, quite a bit of the gains will have to be given back as these were made in preparation of Brexit finally being settled. The question remains as to whether the deal passing Parliament will continue to throw more momentum into this currency. The reality is that it may pop after a deal is agreed to, but right now you would definitely be chasing the trade. This is one of the most dangerous ways to get involved in the markets.
The trade going forward
The trade going forward in this pair is going to be more of a value proposition from this point. If you are not already long in this market, it is far too dangerous to get involved here. Think of it this way: a 50% pullback would put you down almost 300 pips. Very few traders can lead a 300-point move to go on for very long. However, you can use a pullback like that to find a bit of value going forward.
Looking at the chart, the support will more than likely be found at the black 200-day EMA, which is currently closer to the 1.26 level. There is a hammer there that should be an area of large clustering: we have already seen a pullback in a launch from that area, and quite often the 200-day EMA is an area where longer-term traders will get involved again. Shorting this market is going to be very difficult after this massive move, unless there is a complete meltdown with Brexit itself.
It certainly looks as if the negotiations are moving in the right direction. For now, it’s up to Parliament to finish this.