GBPUSD may top out before Brexit

[Mercury]

Oh dear!  Sods law applies, just after I said I was out of the market it looks like a good (in normal circs) trading opportunity may be about to present itself.  Recent price action has brought my alternative scenario into play for this pair such that the Wave 4 previously tagged at May 2016 high was in fact a Wave A with Wave 4 still to come and Wave B from last Thursday at the start of the current sharp rally.  Of course Wave 4 could still have some time post Brexit to materialise but just now a scenario where the top is just above current price at or near the up-sloping tramline (green) and the down-sloping weekly tramline (purple) is in play.  In addition just above this tramline junction there is a resistance zone about the Fib 50% of the Wave 2 start point.   On the hourly chart we could be nearing the end of the Wave C with a 1-5 count and in the final 5.  

 

Normally I be hot to Short this set up but Brexit puts a different risk complexion on things.  Having said that the fundamentals of the economy do not seem to justify the rally to me so we could be either seeing an incorrect reading of the result as remain or, more likely, a case of "buy the rumour sell the fact".  Apart from some over exuberance post a remain result I can't see any justification for a sustained rally in GBPUSD can anyone else?

 

Therefore my strategy will be to wait for Brexit vote result, assuming Remain wins then wait for the overreaction and if this is in keeping with a Wave 4 set up then Short on a suitable retrace rally.  If Leave wins, well let's cross burn that bridge if we come to it...

 



[Mercury]

Total agree  hence my comment about overreaction to the eventual result and only then a return to "business as usual".  Still I expect the long term chart projections to hold true so the issue for me is how/when to identify a low risk/high likelihood of success trade after the volatility settles down.  If we do see a major turning point during this period that will be annoying because it will likely be hard to get in on so have to wait for the next opportunity after that, as you say once the dust settles.

[Mercury]

Doubt it.  Last You Gov poll had Leave as ahead.  I suspect they are looking at an running poll of polls but in the end the recent move has been too strong, over price in a remain already I am guessing.

[Mercury]

Indeed I am up to date, no more jet lag, thought this Referendum is worse than jet lag...

 

See link for latest FT tracker (poll of polls), which puts Leave 1 point up, you will also see the You Gov poll I was referring to in the break down below the consol numbers.

 

https://ig.ft.com/sites/brexit-polling/?ftcamp=traffic/sem/tactical_brexit/uk_google/essence_sem/auddev

 

For me this is of academic interest only as I do not think it will have a material long term impact.  See EURUSD today, I took a cheeky short mid morning on the basis of my chart analysis and the pair did what the pair was going to regardless of leave v remain uncertainty.  Bottom line for me is that the Euro is weak because the Eurozone is weak and Draghi will continue to throw good money after bad (or fictitious money after fictitious money) resulting in NIRP for people holding Euros with no end in sight.  In this context remain does noting for the Euro and Leave potentially drives EURGBP down as GBP becomes an offshore currency outside the EU (it kinda already is but Leave would make this more transparent).

[Mercury]

Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning: 

 

"At $1.47 GBP/USD, from an FX market @Hedgeye immediate-term TRADE signal perspective, a Remain vote is priced in.

[Mercury]

SO GBPUSD did in fact top out before Brexit, pity it was all too volatile with spreads too wide and margin too large to trade.

 

Lets hope IG return to pre Brexit vote conditions ASAP so we can all get back to business...

[donaldprice]

Interesting article from the FT a few hours ago:

 

 

Some of the world’s largest hedge funds, many of which sat on the sidelines during the UK’s vote to leave the EU, have now moved aggressively to bet against the pound and British stocks in the expectation of a sharp deterioration in the UK economy. Although there were sharp swings in sterling both before and in the immediate aftermath of Thursday’s referendum, hedge funds largely avoided taking large positions in the run-up to the vote due to uncertainty over the result. But several hedge fund mangers said they now were rapidly targeting the pound and UK company shares, considered most vulnerable to a British recession. The managers said they were selling sterling and the FTSE 250 stock index, which consisted of companies linked to the British economy rather than the more internationally focused FTSE 100 index. “Shorting the pound is a consensus trade — people are desperately trying to get into it in a larger size right now,” said a London-based hedge fund manager managing several billion dollars of assets. “The hedge fund community is definitely piling into this trade today, the question it is divided on is how much of a spill over we are going to see from Brexit into other European markets.” Most fund managers spoke to the Financial Times on the condition of anonymity because of the stigma attached to profiting on sterling’s sharp fall and recession expectations. The pound has fallen to its lowest level since 1985, touching $1.3118 on Monday, and has fallen 14 per cent since the polls closed on Thursday evening. This marks the largest two-day decline in sterling during the post-Bretton Woods era that began in 1971.

 

 

 

[Mercury]

Really?

 

Cue rally in GBPUSD and a short squeeze on Hedgies.  Only after the ubiquitous retrace is the short on, unless you were brave enough or had a sufficiently large account to ride out the ridiculous margins to get in around midnight on the 24th...

 

Short the rallies!