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GBP/USD Technical Analysis: Brexit Fears Pummel the Pound

GBP/USD Technical Analysis: Brexit Fears Pummel the Pound

2016-06-01 16:27:00
James Stanley, Strategist
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Talking Points:

In today’s capital markets, matters can change very quickly. And while this may be an obvious statement that can be similarly applied to many market environments, the fact that we are still in a NIRP-like economic mode in which Central Banker and Politicians' promises drive markets as much if not more than the actual underlying fundamentals makes this potential for brisk changes and aggressive reversals all the more real.

We may be in the midst of such a change in the British Pound. In our last article, we looked at the vertical-like price movements higher as the British Pound continued to rally as it appeared increasingly less-likely that we’d see British voters elect to leave the European Union at the upcoming referndum to take place on June 23rd. As we mentioned, the aggressive up-trend left price action far away from any nearby support, and traders would likely want to wait for a cleaner entry with more reasonable risk parameters before entering.

And until mid-morning yesterday, it appeared as though that theme was set to continue as Brexit fears continued to get priced-out of the British Pound. But then two very recent polls were released showing a slight majority in the ‘leave’ camp; providing the brutal reality that continued EU-membership is not to be taken for granted. This is likely much to the chagrin of the many commentators that have publicly spoken out against the ‘leave’ vote; warning of higher unemployment, higher inflation, slower growth and a significantly weaker British Pound should the leave vote take the majority in the upcoming referendum.

At this point, price action on the British Pound continues to fall below deeper and deeper support levels, having smashed through each potential support that we were looking at in our last article with little signs of actual support having been seen. Yesterday’s daily candle produced a bearish engulfing candlestick, and that continuation pattern has led to a further drop today.

This could raise the possibility of a return of the prior down-trend in the British Pound.

The major level of interest for traders looking at continued development of this theme are at 1.4371 and 1.4303, as each is a confluent Fibonacci level. The price of 1.4371 is the 76.4% retracement of the 2009-2014 move in the pair, and 1.4373 is the 50% Fibonacci retracement of the prior major move (taking the January 2016 low to the February high); and just below that at 1.4303 we have the 61.8% retracement of that prior move, and 1.4302 is the 50% retracement of the most recent major move.

Should these levels give way with a swing-low printing below 1.4300, traders can look for down-trend resumption, at which point prior points of support could become attractive levels of resistance at the 1.4371 zone, followed by 1.4412 (38.2% of most recent move) and 1.4443 (38.2% of prior move, and prior swing-low).

GBP/USD Technical Analysis: Brexit Fears Pummel the Pound

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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