On June 23rd, 2016, the citizens of the UK voted on a referendum to decide whether Britain would continue to be part of the European Union or revert back to its pre-2000 form of autonomous government.
52% of the vote was in favour of leaving the European experiment, which was a result that most market pundits did not predict.
The impact from Forex traders was swift and decisive as the GBP/USD fell from 1.5030 to just under 1.3220 after exit polls showed the “leave” camp was going to win.
This 12% drop on the day of the vote would become the directional “cause and effect” logic for how the Sterling would trade based on the terms of the withdraw.
Over the last 2.5 years, negotiations have been painfully protracted and, at times, uncivil between the UK and the EU with the currency dropping sharply on any news of setbacks in the terms of the “Brexit.”
However, with the most significant vote on the Withdraw Bill scheduled for Tuesday, the GBP/USD posted an outside reversal higher last Friday and has extended gains during today’s Asian time-frame.
It seems that some Forex traders are looking past the House of Commons vote, which has virtually no chance of passing, and interpreting an extension of the March 29th deadline as a more bullish outcome than either the current Withdraw Bill, or a hard Brexit without an agreement.
The technical outlook supports this price action for a corrective move higher over the near-term. We see initial resistance at 1.2870 and a more significant chart point at 1.2980. We are currently flat the Sterling. We suggest short-term traders can look to sell the GBP/USD at 1.2990 with an initial target of 1.2635 and a 1.3075 stop.
Our trade suggestion to add to short EUR/USD positions did not get filled, which leaves us short from 1.1465. With the upside momentum capped near 1.1550, we see scope for a technical move lower as the MACDs and RSI are both moving lower.
This week’s inflection point is just under 1.1430 and we suggest holding short from 1.1465, or better, with an initial target of 1.1225 and a 1.1575 stop.
Today’s posting of China’s largest monthly USD trade surplus capped the recent advance of the Aussie dollar. Technically, the AUD/USD looks overbought with internal momentum indicators rolling over to the downside.
Our trade suggestion to sell AUD/USD at .7245 was not filled, which leaves us short from .7120. We suggest holding short at .7120, or better, with an initial target of .6875 and a .7290 stop.
The USD/JPY continues to recover from the flash crash on January 3rd but has found solid resistance over 109.00. The correlation of the pair with the SP 500 suggests buying lower makes more sense than joining momentum trades higher. As such, we prefer to work buy orders below the current market.
Our trade suggestion to buy at 106.80 was not filled, which leaves us flat. We suggest lowering the bid to 106.35 with an initial target of 108.80 and a 105.40 stop.
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