At this point, it’s obvious that the entire world is paying attention to the Brexit when it comes to the financial markets. However, you should always keep in mind that what you hear and what the reality is can quite often be significantly different. With that in mind, I’m looking at the weekly chart of the British pound and it tells me that the fear mongers are starting to lose their grip on the market. Looking at the weekly candlestick, you can see that it’s obviously a hammer, but what I find even more interesting is that the hammer has formed by testing the previous downtrend line, which should be supportive to begin with. Beyond that, we also have the 50% Fibonacci retracement level from the recent breakout offering support as well. Looking at this chart, I think that we are starting to see traders focus on the U.S. dollar and the fact that the Federal Reserve is starting to step to the side. We have seen extreme U.S. dollar strength for quite some time, and I think that is coming to an end.
Even in the middle of the Brexit drama, there will be people out there moving money into the British pound understanding that we are at historically low levels. When I look at the chart, the 1.20 level seems to be one of the most important levels that we have seen for years, and now we have broken through major resistance a couple of times. We are essentially trying to make “higher lows”, and this goes back to the way that large accounts typically trade – you buy things when they are cheap and sell them when they are expensive. The British pound is most decidedly cheap at this point, mainly because of the fear of the United Kingdom imploding if it leaves the European Union. Those with a little bit longer term time horizon understand that will not happen. Simply put, it looks as if the British pound is ready to bounce yet again, as this week looks to continue the massive supportive bounce that we had seen late last week. I anticipate that we will probably go looking towards the 1.32 handle, with massive support underneath extending down to the 1.27 level at the very least.
By Source: Investing.com
Feb 18, 2019 12:12AM ET