We’ve seen a lot of Brexit and GBP speculation over the last 6 months. With Teresa May stepping down, Brexit has once again hit international news, but just what can traders expect from GBP in the coming weeks and months?
Below you’ll find two very opposing opinions from two very different forecasting approaches. We start with a technical analysis from a forex professional and end with a political journalist’s unusual approach to predicting the future for GBP. Read both, and decide for yourself which of these writers has a better chance of getting it right.
Rise (at least in the short term…)
While it’s certainly true that fundamental analysis of any derivative is not a tool for making practical decisions, this is especially true for the pound since the Brexit referendum. Politics, economic data, shares, and other factors have in general been completely unpredictable. Surprise news has dominated the very low timeframes of most symbols with the pound. However, conventional technical analysis of the usual intraday and especially interday timeframes continues to generate mostly reliable signals.
1. Pound-dollar (GBPUSD; ‘cable’)
Cable (GBPUSD) is of course only one of the most traded symbols featuring the pound sterling. Still, many traders take it as a bellwether for the performance of the pound.
There are a number of points worthy of comment here, but the most important is that the pound has been exceptionally oversold against the dollar, especially at the end of last week. Slow stochastics gave readings very close to zero. Now, though, the stochastic line itself has crossed noticeably above the signal line. Price opened higher on Monday, but failed to make lasting gains.
The recent attempt to retrace came just after a clear doji on Thursday. Three black crows earlier in the week could have suggested an ongoing downward movement but for the quick arrival of price into oversold territory. Cable hit what appears to be a fairly strong support above the key area of $1.26, which seems to suggest that a retracement is favorable in the near future. As yet, there is no indication that price could challenge Christmas’ lows below $1.25 anytime soon.
2. Euro-pound (EURGBP)
Euro-pound (EURGBP) is the second most traded symbol with the pound sterling. The technical picture here on the dailies is fairly similar to cable, although obviously in the other direction, given that the euro is the base currency here.
Again the pound has been very strongly oversold, with slow stochastics close to maximum. The stochastic line has started to move below the signal line. Recent price action, though, is somewhat less clear. It’s possible that 88.3 pence could be an important area of resistance in the near future, which price is currently testing. Such an area would coincide with the 61.8% Fibonacci retracement of the latest downward movement on this timeframe. This hypothesis is supported by the presence of the 200-day moving average only slightly below this region on the chart.
Despite the lack of any clear signal from stochastics on this symbol, the usual conditions for overbought as continuation are absent. To assert that a continuation or consolidation is favorable, traders would normally seek out a significant change in the positions of faster MAs relative to one another. Crucially, there has been no breakout of MACD as yet, with the indicator continuing to signal slowing upward momentum.
Watch the key levels for a surprise
Given Mrs. May’s announcement on Friday and the performance of British shares last week, it would be quite foolish to ignore the fundamental picture and correlations. Political chaos, weak economic data, and strong pullbacks at the LSE can always affect the pound significantly in the short-term. Looking beyond the typical H4, though, the pound appears to be on track for a degree of recovery... or at least relative stability.
A different way to look at GBP
Here’s the contrasting outlook for GBP based on a more familiar way of looking at things.
Looking back on the previous Brexit news releases, chart analysis using indicators proved inconclusive and occasionally disappointing—which is why I’m not going to suggest technical analysis. Instead, I’m going to stick to what’s been consistent throughout the Brexit fiasco, and that is common sense.
Traders saw striking news and some of them probably expected big GBP moves, but instead, they saw the steady downward trend continue as if nothing had been accomplished—which is not far from the truth. The delays to Brexit also meant a delay on a concrete decision—and therefore a delay on any effect to the crashing UK currency. With that in mind, let’s look at the facts and interpret the obvious.
What happened recently?
So, Theresa May has stepped down as leader of the conservative party, and the position of Prime Minister is up for grabs. That’s clear news, but how much closer are we to knowing if Brexit will happen or not? Again, the big news is no news at all, and the absence of a clear plan to stay or leave the EU puts GBP traders in limbo. Traders would be wise to expect very little change to price moves. For now, the rise that began on May 23 is generating speculation for GBP buyers, and so far the European Parliament elections barely made a dent. Perhaps the fuel for that rise is nothing more than a little sensationalism, so don’t expect it to last long.
Moreover, the United Kingdom is now headless, and politicians—both for and against Brexit—are wrestling for the job with Trump-style speeches that have no real vision for the UK. The island nation is still very much in hot water, and nobody is offering economic solutions outside of the “stay or go” Brexit dilemma.
Expect GBP’s recent rise to lose momentum quickly as the parliamentary circus introduces the new candidates, and consider a Sell order for the long term. Keep an eye on your GBP order and regularly check the news for something about the withdrawal agreement that could actually give hope to GBP and the British economy. If nothing positive comes to light, then sit tight.
So there you have it. Two very different opinions on what the future will bring for GBP. Which one rang true for you? Make your own investigation and see for yourself why GBP traders are struggling. Whether you side with technical analysis or political influence, only trade if your own conclusions support your direction.
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