- The British pound continues to rally on Monday
- Clears 50-day EMA
- Reaching towards psychologically important 1.25 GBP level
The British pound has rallied during the trading session on Monday to kick off the trading week, slicing through the 50-day EMA yet again. This is a positive development, as traders continue to try and figure out what’s going on with Brexit this week. Currently, it looks as if Boris Johnson has been stymied a bit. But at the end of the day, even if Brexit gets delayed, there is going to be one underlying factor in this pair: uncertainty.
The technical analysis is short-term bullish, longer-term bearish. The 50-day EMA being sliced through, as we have seen earlier on Monday, is a good sign. However, there is still a significant amount of resistance near the 1.25 handle above, as it is an area that looks to be very congested. It has a certain amount of psychological significance to it, due to the fact that it is a large, round, psychologically significant 500-point number. Quite often, you will see large orders at these levels. Beyond that, you can also see that it had zigzagged quite a bit last time it was there, which shows a lot of energy being absorbed by the market.
The 200-day EMA is currently at the 1.2680 level and racing towards the 1.25 level. As such, it’s likely that we will continue to see a lot of interest in the market, as it is the most news-driven pair right now. Everything indicates that longer-term money is simply waiting for an opportunity to sell at higher levels.
The trade going forward
The trade going forward is going to be one that takes some patience. Simply waiting for a move towards the 1.25 level seems to be the most prudent thing right now, because the situation with Brexit is still so fluid. At this point, there is still a fair amount of uncertainty out there that could continue to plague this market. There is plenty of reason to think that the volatility will only get worse, especially as we start to get close to the October 31 deadline. Ultimately, waiting for signs of exhaustion above will be the way to play this market. It’s also worth nothing that the 1.20 level has offered significant support while the market was a bit overextended at that point in time.
Wait for exhaustion candles, and then go with the longer-term trade, which has obviously been very negative. There will probably be one more massive “flush lower” once Brexit gets settled. At that point, it’s very likely that value hunters will come in to pick up the currency after some stabilization. Until then, the trend is still very much negative, even though the last couple of trading sessions have been quite the contrary.
- No end in sight for British weakness
- Rumors of snap election
- Technical level being retested
- No good news for Sterling
Looking at the British pound, it is clear that it continues to struggle on Monday trading. At this point, it looks as if the markets will test the 1.20 GBP level, an area that caused a significant bounce previously. At this level, we have seen a significant bounce and there should be a reasonable amount of support just waiting to happen. It is because of this that a break down below there could really open up the “floodgates” when it comes to the downward pressure.
Continued Brexit drama
The Brexit drama never seems to end. At this point in time, it is highly likely that the British pound will continue to suffer at the hands of politicians that cannot seem to get it together. There are now rumors in Westminster that Tories are looking to perhaps oust Boris Johnson in the hope of saving some type of deal with the European Union. At the same time, he is talking about a potential snap election if that happens.
In other words, we have more drama and fewer facts when it comes to the British pound. Traders despise uncertainty, and will therefore run away from the currency.
The technical level you should be paying attention to is the 1.20 level. If we can get an hourly close below that level, it’s very possible that we will unwind down to some historical support levels in the pair at the 1.18 handle and that of the 1.15 level. It is likely to reach the 1.15 level given enough time, although it will obviously be very noisy between here and there. There will still be leading headlines out there that can have an impact, so at this point it is probably best to look at short-term rallies as opportunities to sell again.
To the upside, if we were to break above the 1.2250 level again, it could show a bottoming pattern that longer-term traders may pay attention to. At this point, however, it seems unlikely, unless there is some type of major change in the way that the British are dealing with themselves and with the European Union. A massive “flush lower” may eventually occur, and that could be the bottom. We have simply not seen that capitulation sell-off that a lot of longer-term traders wait for.
The trade going forward
The trade going forward is to simply sell this market every time it rallies about 50 pips or so. It’s not recommended to put huge positions on, but it will get more aggressive below the 1.20 level, as it would be a major support breach. It is a psychologically important figure as well. Ultimately, this is a market that seems destined to break down. But in the meantime, it will still rattle the nerves of both buyers and sellers.