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Talking Points:
- GBP/USD Technical Strategy: Aggressive reversal after last Thursday’s Doji that has now volleyed by more than 700 pips off of the lows.
- GBP/USD is expected to stay extremely volatile with low liquidity until at least after the Brexit referendum, and likely until into next week.
- If you’re looking for trading ideas that aren’t GBP-related, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator.
In our last article, we looked at a symmetrical wedge formation that had begun to build in GBP/USD as we moved nearer to the upcoming Brexit vote; with the top-side of that wedge being defined by a two-year, downward-sloping trend-line. And within a couple of days of that article, we saw the down-side of the wedge give way as fears of a Brexit vote to leave ran high, bringing risk aversion to global markets, led by a tumultous decline in GBP against most global currencies.
But Thursday of last week saw a quick about-face. After moving to just 11 pips above the vaulted psychological level of 1.4000, an aggressive reversal began that saw GBP/USD rocket higher by more than 700 pips, running into the previous swing-high that was set in early May around the 1.4769 level. And price action did set a new high by 12.1 pips before turning around, producing a doji on the daily chart after that high was set.
In a normal environment, a 700-pip incline would be noteworthy in regards to continuation strategies; but what we are sitting in front of is anything but a ‘normal’ market as the world braces for the Brexit referendum that’s now just two days away. Every GBP-pair has the potential for extraneous and chaotic volatility, and this should serve as a threat to traders that might be looking at the potential for volatility as being opportunistic.
Chart prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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