As forex markets get underway in the London session, the British pound is once again in the firing line as relentless downwards pressure drives the currency ever lower universally across the pairs, but particularly against the US dollar for the 6B December futures contract on the daily chart. The floor of 1.3000 that had provided strong and solid support up until late September is now a dim and distant memory, and until this was breached offered the British pound the prospect of a potential move higher in the longer term. Once through the 1.2800 price point, the writing was on the wall with the weight of technical pressure adding to the fundamental picture, with last week’s flash crash merely increasing momentum for the inevitable slump in sentiment, and it is curious to think that the pound was once the currency of first reserve! How times change. Friday’s spike lower has now created a potential target for a floor in the 1.2026 area, and with the pair currently trading at 1.2302 only a modest distance to travel before this is reached.
Moving to the monthly chart this helps to provide some longer term perspective, and it will be interesting to see how the volume of the Brexit candle, then compares with the volume associated with the candle of this month, once completed. Last month’s candles confirmed the weak technical picture with high volume on the attempt to rally which then ran into resistance in the 1.3500 area before closing the month 500 pips lower in the 1.3000 area. This month’s price action has duly broken the floor of support in this region, and with a low volume node in the 1.2000 area, there is little in the way of support. As always volume will reveal big operator buying, which singularly lacking at the moment. At present, on the slower timeframes there is no evidence of any stopping volume, and if and until this arrives, bearish sentiment remains heavy.
Longer term the pattern for the pound is now set. Further downside momentum on the prospect of a hard Brexit, followed by an extended congestion phase, a buying climax and consequent recovery as the sun comes out once again. This could extend over weeks, and probably more realistically months, as the traditional climax develops and builds. For intraday trading, it is difficult to trade long given the weight of universal sentiment, and indeed in many ways is similar to trading oil in this respect. When the trend is so heavily bearish, it is difficult to take a counter trend position intraday. But as with oil, they are there, and just like oil, the pound will recover in the longer term. In the meantime, as always it is a question of trade what you see on the chart and not what you think or your opinion.
By Anna Coulling
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