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It's that time of year again when the Brexit deadline is drawing closer, this semi-annual celebration of all things Brexit always makes the politicians excited for a while, and then we delay and delay and delay.
Well today, I've decided to analyse both the technical and fundamental developments which I have identified over the last week.
Fundamentally, nothing has changed. Except for the fact that the rhetoric on no-deal continues to be emphasises and the government has now identified thousands of businesses which could be at risk in the event of a no-deal.
The pound continues to weaken as you can see int he chart below, and we are gradually (although compared to other currency pairs it has been quite a vicious move) moving towards the $1.20 handle. Brilliant.
Guess who's about to go to the States at the weekend.
Ah well, as you can see from the bottom of my screen I am currently short the pound, and on another platform with lower leverage I have been short for the last few weeks and have picked up a tidy profit. (More than covering the exchange rate depreciation I will suffer when I exchange for dollars).
However, the main reason why I have chosen to speak about the pound today is because I have just identified a trend line which may soon come into play which also offers a potential price target. Whenever I find a TL like this on the weekly, it always makes me slightly excited because this has been perfect technically. As you can see, we have had four tests in total with two acting as resistance (one of which, eerily, was directly before the Brexit vote) and two have acted as support.
I have also drawn on a potential higher TL which may continue to act in future.
The last blue circle indicates a potential target where we could see this TL come into play again, and with the level of the pound's aggression to the downside, and no resolution with the EU in sight (BoJo hasn't even been there) it seems likely the move will continue to be lower.
The reason why I have left the RSI up however is for a little risk management. I do firmly believe that we will see something of a bounce of the $1.20 and may recover a while back towards $1.21 - $1.22. Thus, when the market opens in half an hour, I will be exiting from my most levered shorts. This is backed up by the RSI which has just moved into oversold territory on the weekly and is very oversold on the daily, 4 hour, 1 hour, and even 15 minute chart (below).
So, I hope this has provided an interesting possible development to watch over the coming weeks (and I stress, we are talking weeks here - potentially may get a nice test on the week of October the 31st, wouldn't that be fascinating!).
What about the $ weakness story? Any chance more Fed cuts gives the pound a slight relief bounce?
ReplyDeleteHi Larry, thanks for your comment.
DeleteI think the $ weakness story is actually overstated. Yes it's possible that additional cuts could threaten the $'s position, but we have to remember that everyone is cutting at the moment.
True, BOE rates are closer to the effective lower bound than the $ rates, but ultimately compared to many central banks it does appear that the BOE is quite hawkish.
We need only look at Carney's reluctance to cut now to hold off a recession which is already knocking at the door - that was evidenced by the GDP numbers on Friday.
I think we have to assume the trajectory for the pound is down regardless of what happens in the US.
I think (perhaps egoistically) that the Hedge Funds and Forex traders agree too. Despite the strength of the Euro last week, the pound did nothing. Clearly the reason is that Forex traders have bigger fish to fry in Britain.