GBPUSD: how to trade Brexit ?
There were recently many comments that “pound is impossible to trade” and indeed 1-hour charts look like total mess – combination of chaotic moves up and down. No any classic trading style or strategy would survive in this situation where non-stop news flow drive the price randomly in every direction and any given time.
The market anticipates a huge sterling move very soon and volatility is going to be very high. Certainly, institutional players are going to participate in directional trade but do not try to guess what is their bet – institutional money win and lose much in the same way as retail traders. Most spot forex traders, however, would like to play safe and not to enter any trade until the Brexit scenario is completely certain.
While the next week Brexit vote is approaching, any attempts to make some sort of projections turn out to be a pure gambling exercise. While I accept that it is just a matter of randomness and anyway, chart reading is in no case a precise science, however, let us see if we can get some clarity.
It is absolutely clear now that December 11th is anything but guaranteed. May simply emphasized today – it is simply “my deal, no deal or no Brexit at all”. Well, that is obvious. Now, I do not think that Britain can or will afford another Brexit vote and chance of deal in its current version is very narrow – judging from earlier contempt vote and recent political resistance in Parliament.
In this case, the chances that no-deal Brexit scenario will be realized is certainly not low. Looks like May’s current deal makes everybody unhappy.
What do charts tell us ? Weekly chart reveals certain price pattern – and that pattern is in the process of formation – that in most cases implies further price slump below 1.2600 support. There is thick cluster of resistance levels , namely 1.3050-1.3350 which is downward sloping – it will be very tough task for for the price to break it up. And the centerline of this resistance often serves as symmetry line. Now, if this type of symmetry pattern is to be realized, then the price will likely to drop towards 1.2000-1.2100 area – which is around previous lows on weekly charts. This is likely a turnaround point where the price will bounce and then sharply raise all the way up to 1.3200 and further to 1.4000.
This type of price move is very likely in case of no-deal Brexit scenario is realized – according to BOE plans, expect BOE raise interest rate sharply.
Needless to say that this is price action that to be realized within several months. Again, not a precise science but I will be happy if it serves as some kind of guidance. In any case, vote is going to happen next week and I must admit – we are witnessing amazing times. Good luck Britain!