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What if GBPUSD has bottomed out?

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Most commentators seem to be of the opinion that the GBP is going down, down, down vs pretty much everything else.  I have been of a similar bias, at least in terms of GBPUSD but more due to USD strength than GBP weakness, not so much on EURGBP, (see my Triad thread for details of why I think EURGBP is going down long term).  As a contrarian by nature my interest is always piqued when I see the majority talking up a "one way bet", as is occurring on GBPUSD and I look to see if something else may be about to occur.

So what if the Brexit issue is finally resolved on December 12th?  This would mean a Tory majority (or workable partnership with the Brexit party perhaps).  The Tory campaign strategists seem to be doing their best to lose this election with a series of well covered gaffs, starting with Rees-Mogg on Grenfell; then a series of mishaps with candidates turning out to have made ill advised statements in the past; then BoJo himself trying to justify comments made in journalistic articles; then a manifesto that turns the funding taps on and is clearly un-affordable; and finally getting caught up in fake claims such as the number of "new" nurses they will hire and sticking to this despite being found out.  It is as if they don't want to win...  If true they are being undone by equally or greater catastrophic campaigns by the Lib Dems and Labour, the latter of whose errors are no numerous and calamitous I don't have time to write them all out but just watch Andrew Neil's interview with Che Corbyn and you will get the gist.  So net a least worst result of a Tory victory is probably on the cards and therefore Brexit happens in short order.  One uncertainty resolved, for the next 5 years at least...

If Brexiteers turn out to be right and the Remoaner Armageddon scenario is false then the UK (inc Scotland as no further referendum is likely in the medium term) can make its own trade deals, address its balance of payments and deficit issues and reinvigorate its economy overall, subject to whatever deal with the EU is eventually done, if at all...  But what happens if a global economic shock, recession, deflation, stagflation, hyper inflation, call it what you will, occurs?  Well spending plans will go out the window for a start as survival will be paramount.  Interestingly enough some traditional Labour supporters are not going to vote for Labour this time on the basis of their spending plans and poor track record with the public purse.  So it seems the people may already get the need to be careful with the national finances even if the politicians don't, yet!  But we should remember that, although it may not seem like it, the UK is the fifth largest economy in the World, surprising given the heyday of the Empire is long gone and so is British manufacturing.  Still there it is.  Add to this that the UK has its own currency, a venerable one that still has the air of security about it in many parts of the World.  Add to this that the UK is, in my opinion and in the opinion of many people from overseas whom I know, the worlds strongest democracy (note I am not British so this is not a nationalistic view).  Add to this that the UK will have just left the protectionist, undemocratic EU (Brexiteer view and view of many non EU members) and be a stand alone offshore entity.  Add to this that the UK is about as open and business friendly a jurisdiction with a reasonably low corporate and person tax rate (not if Corbyn/McDonnell have anything to do about it!).  Add to this that the UK has one of the preeminent world cities in London, a place where many overseas people like to stash their cash in property, listed companies and bullion vaults and the case for a flow of funds into the UK under a global economic shock is very strong indeed.

So that's the fundamentals case, and open to debate of course and full of what ifs, but what do the technicals look like?

Looking at the quarterly chart (including a long term chart - not shown) since the 1950s (and before, as the British Empire declined) GBPUSD has been in a Bear market that has roughly dropped in a motive wave to the 1984/5 all time low.  After than a drawn out A-B-C retrace that hit the Fib 62% off the 1950s high point occurred at the credit crunch, which set up the current bearish phase.  Note this has precisely nothing to do with Brexit, although joining the EU may have had an impact..?  During the credit crunch GBPUSD dropped sharply then went sideways until 2014 (2 years before Brexit!) before dropping again.  In fact we could view the Brexit referendum and everything that has since occurred as the final phase of the Bear and not the trigger.  What if the drop in the immediate aftermath of the Brexit referendum was the end of the Bear?  We often see an exhaustion spike at the end of a motive wave, and this would certainly qualify (note many people though it a flash crash but maybe an exhaustion spike is more correct?)  What if the entire move so far since the ATL is an A-B (red), then the next phase would be a large wave C rally that will break the resistance trend line (see monthly chart) and carry one for some time to come.

Looking at the monthly chart the 2016 bottom occurred at a confluence of 2 possible supporting trend lines after a 1-5 motive wave off B (purple).  The end of the move was in Oct 2016 and occurred with a then all time net negative Commitment of Traders (Futures & Options) print (-94k) and record total Short positions (-147k) with a significant pin bar (see weekly chart).  A few months later we got the all time lowest net COT reading (-113k, -147k shorts again) and then the market rallied away.  Looking at the weekly chart I can see that pin bar that prompted a 1-5 wave rally (exhaustion spike?).  Normally a 1-5 is a motive wave (long term trend direction).  In my bearish scenario I marked this out as a potential Flag formation but is doesn't sit well in the context of the rest of the price action, being too long.  After a 1-5, if it is a motive wave 1, we tend to see an A-B-C retrace and at present it looks like this is what we have seen with a turn in September of 2019.  This ended with a pin bar reversal, quick 1-2 (green) and rally away through weekly trend line resistance.  Note also that the COT print just before the reversal was a net -107k, large but not all time but still a classic contrarian signal, which I traded long.  At first I though this was a retrace move but the current consolidation does not really match the likely route for an A-B-C retrace that would end inside the long term resistance trend line (monthly chart) so my new lead scenario is that this consolidation is setting up for a much stronger rally that would break that monthly trend line and carry on for the foreseeable future in a large wave C (red).  Note at all major turns significant positive momentum divergence and over sold oscillators are also present.

So net I think this more bullish scenario fits both the technicals and price action and the contrarian bias plus there is a fundamentals case, subject to what happens in the election.  If the Tories do not win a workable majority (with or without Brexit party help) then all bets are off, or at least we may seen more consolidation or whipsaw until things are resolved.  If Labour win, in any form, my Bearish scenario is likely to kick in big time as they look to explode the deficit and consign the country to another year (likely much more) of uncertainty and divisive politics, and that's before they get stuck into their long term Marxist state creation.  The most important election in generations?  Not wrong...

GBPUSD-Quarterly_301119.thumb.png.c17ba390523445e4421d07d0de687106.pngGBPUSD-Monthly_301119.thumb.png.012585c8775f953e4332402e503416a8.pngGBPUSD-Weekly_301119.thumb.png.e2d8a3a40d2ff5479cb9b0560a5bd5b6.pngGBPUSD-Daily_301119.thumb.png.dfb7f33ef6e21de4fba637e566596b05.png

 

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Guest neill

wow a lot of work gone into that! 

so is cable going up or down? 😄

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On 30/11/2019 at 17:52, Mercury said:

Most commentators seem to be of the opinion that the GBP is going down, down, down vs pretty much everything else.  I have been of a similar bias, at least in terms of GBPUSD but more due to USD strength than GBP weakness, not so much on EURGBP, (see my Triad thread for details of why I think EURGBP is going down long term).  As a contrarian by nature my interest is always piqued when I see the majority talking up a "one way bet", as is occurring on GBPUSD and I look to see if something else may be about to occur.

So what if the Brexit issue is finally resolved on December 12th?  This would mean a Tory majority (or workable partnership with the Brexit party perhaps).  The Tory campaign strategists seem to be doing their best to lose this election with a series of well covered gaffs, starting with Rees-Mogg on Grenfell; then a series of mishaps with candidates turning out to have made ill advised statements in the past; then BoJo himself trying to justify comments made in journalistic articles; then a manifesto that turns the funding taps on and is clearly un-affordable; and finally getting caught up in fake claims such as the number of "new" nurses they will hire and sticking to this despite being found out.  It is as if they don't want to win...  If true they are being undone by equally or greater catastrophic campaigns by the Lib Dems and Labour, the latter of whose errors are no numerous and calamitous I don't have time to write them all out but just watch Andrew Neil's interview with Che Corbyn and you will get the gist.  So net a least worst result of a Tory victory is probably on the cards and therefore Brexit happens in short order.  One uncertainty resolved, for the next 5 years at least...

If Brexiteers turn out to be right and the Remoaner Armageddon scenario is false then the UK (inc Scotland as no further referendum is likely in the medium term) can make its own trade deals, address its balance of payments and deficit issues and reinvigorate its economy overall, subject to whatever deal with the EU is eventually done, if at all...  But what happens if a global economic shock, recession, deflation, stagflation, hyper inflation, call it what you will, occurs?  Well spending plans will go out the window for a start as survival will be paramount.  Interestingly enough some traditional Labour supporters are not going to vote for Labour this time on the basis of their spending plans and poor track record with the public purse.  So it seems the people may already get the need to be careful with the national finances even if the politicians don't, yet!  But we should remember that, although it may not seem like it, the UK is the fifth largest economy in the World, surprising given the heyday of the Empire is long gone and so is British manufacturing.  Still there it is.  Add to this that the UK has its own currency, a venerable one that still has the air of security about it in many parts of the World.  Add to this that the UK is, in my opinion and in the opinion of many people from overseas whom I know, the worlds strongest democracy (note I am not British so this is not a nationalistic view).  Add to this that the UK will have just left the protectionist, undemocratic EU (Brexiteer view and view of many non EU members) and be a stand alone offshore entity.  Add to this that the UK is about as open and business friendly a jurisdiction with a reasonably low corporate and person tax rate (not if Corbyn/McDonnell have anything to do about it!).  Add to this that the UK has one of the preeminent world cities in London, a place where many overseas people like to stash their cash in property, listed companies and bullion vaults and the case for a flow of funds into the UK under a global economic shock is very strong indeed.

So that's the fundamentals case, and open to debate of course and full of what ifs, but what do the technicals look like?

Looking at the quarterly chart (including a long term chart - not shown) since the 1950s (and before, as the British Empire declined) GBPUSD has been in a Bear market that has roughly dropped in a motive wave to the 1984/5 all time low.  After than a drawn out A-B-C retrace that hit the Fib 62% off the 1950s high point occurred at the credit crunch, which set up the current bearish phase.  Note this has precisely nothing to do with Brexit, although joining the EU may have had an impact..?  During the credit crunch GBPUSD dropped sharply then went sideways until 2014 (2 years before Brexit!) before dropping again.  In fact we could view the Brexit referendum and everything that has since occurred as the final phase of the Bear and not the trigger.  What if the drop in the immediate aftermath of the Brexit referendum was the end of the Bear?  We often see an exhaustion spike at the end of a motive wave, and this would certainly qualify (note many people though it a flash crash but maybe an exhaustion spike is more correct?)  What if the entire move so far since the ATL is an A-B (red), then the next phase would be a large wave C rally that will break the resistance trend line (see monthly chart) and carry one for some time to come.

Looking at the monthly chart the 2016 bottom occurred at a confluence of 2 possible supporting trend lines after a 1-5 motive wave off B (purple).  The end of the move was in Oct 2016 and occurred with a then all time net negative Commitment of Traders (Futures & Options) print (-94k) and record total Short positions (-147k) with a significant pin bar (see weekly chart).  A few months later we got the all time lowest net COT reading (-113k, -147k shorts again) and then the market rallied away.  Looking at the weekly chart I can see that pin bar that prompted a 1-5 wave rally (exhaustion spike?).  Normally a 1-5 is a motive wave (long term trend direction).  In my bearish scenario I marked this out as a potential Flag formation but is doesn't sit well in the context of the rest of the price action, being too long.  After a 1-5, if it is a motive wave 1, we tend to see an A-B-C retrace and at present it looks like this is what we have seen with a turn in September of 2019.  This ended with a pin bar reversal, quick 1-2 (green) and rally away through weekly trend line resistance.  Note also that the COT print just before the reversal was a net -107k, large but not all time but still a classic contrarian signal, which I traded long.  At first I though this was a retrace move but the current consolidation does not really match the likely route for an A-B-C retrace that would end inside the long term resistance trend line (monthly chart) so my new lead scenario is that this consolidation is setting up for a much stronger rally that would break that monthly trend line and carry on for the foreseeable future in a large wave C (red).  Note at all major turns significant positive momentum divergence and over sold oscillators are also present.

So net I think this more bullish scenario fits both the technicals and price action and the contrarian bias plus there is a fundamentals case, subject to what happens in the election.  If the Tories do not win a workable majority (with or without Brexit party help) then all bets are off, or at least we may seen more consolidation or whipsaw until things are resolved.  If Labour win, in any form, my Bearish scenario is likely to kick in big time as they look to explode the deficit and consign the country to another year (likely much more) of uncertainty and divisive politics, and that's before they get stuck into their long term Marxist state creation.  The most important election in generations?  Not wrong...

GBPUSD-Quarterly_301119.thumb.png.c17ba390523445e4421d07d0de687106.pngGBPUSD-Monthly_301119.thumb.png.012585c8775f953e4332402e503416a8.pngGBPUSD-Weekly_301119.thumb.png.e2d8a3a40d2ff5479cb9b0560a5bd5b6.pngGBPUSD-Daily_301119.thumb.png.dfb7f33ef6e21de4fba637e566596b05.png

 

Thank you for that, such a great read :D

18 hours ago, Guest neill said:

wow a lot of work gone into that! 

so is cable going up or down? 😄

DailyFX have writen a piece on Cable!  'From the daily chart, we notice yesterday, GBP/USD rallied to a higher trading zone 1.2965 – 1.3048. Today, the price has tested the high end of the zone.' The anallysts are thinking it will continue to increase.  

image.png

 

Do bear in mind the 'USD ISM Non-Manufacturing PMI (Nov)' results are out this afternoon at 15:00 GMT, currently expected slightly lower than previous. Prev 54.7, est 54.5. 

GBP/USD Changes Gear & Jumps to Multi-Month High -British Pound vs USD Price

 

We're not telling you which way to trade just giving you information using technical analysis and market news. 

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18 hours ago, Guest neill said:

so is cable going up or down? 😄

Up!  The question is not up or down at this juncture, as I outlined in my other thread, GBPUSD has already turned bullish and broken out of key resistance.  The question is now how high?  The 2 scenarios I have in play (on different threads) are:

  1. The rally is a retrace/relief rally that will culminate with a turn back down and major bearish phase as USD rockets, possibly on major market wide and economy wide crisis.
  2. The one way bet on GBP going down, as outlined above, is over done; too many Bears on one side of the equation, the market confounds this zeitgeist and breakout out of long term resistance to rally on up.

The key point is probably around 14,000 initially, which is the long term resistance trend line and after than a horizontal resistance area at circa 14,400 but the big one is 15,000, which is the top of the Brexit referendum spike.  We should see which scenario plays out in the coming months, won't have to wait years I feel...

But if you are looking for more certainty, well, let us know if you ever find it...

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Apropos of which, guess what Mr Stupid Moron (me) did yesterday?  Closed out his long position on GBD/USD.  What a smart fella I am :D😘

 

Edited by dmedin

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1 hour ago, dmedin said:

Apropos of which, guess what Mr Stupid Moron (me) did yesterday?  Closed out his long position on GBD/USD.  What a smart fella I am

Should be relying on the technicals more I guess...

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