Brexit: GBPUSD – The Week After
|In the week after the Brexit referendum result, anxiousness is likely to be common in the markets. Headlines regarding the pound crashing populate the landscape. The most important point to bear in mind, however, is that price relationships move in waves and cycles, and rarely go in a straight line. Even on Friday, the panicked intraday sell-off was balanced by a pullback at the end of the day, as will be seen in Figure 1.
Figure 1: The Pullback on GBPUSD
Does this mean the sell-off was overdone? Unlikely. However, it does mean that traders who wish to profit from this situation would do well to stand back, take a deep breath, and then refocus on the opportunities. What are they? There are many opportunities that could emerge in the current market, but since we shall devote attention the pound in this article as that is one of the currencies in the immediate spotlight.
A large portion of what to do will depend on how Monday opens. The best opportunity would be if Cable rose higher to enable new shorts to be entered. Figure 2 shows the appropriate Blue Box zone (1.4057-1.4333) of interest. Traders should not assume that it will automatically turn here, but instead await appropriate trade triggers before entering.
We are particularly interested in the hourly chart formation, and for this timeframe, candlestick reversal patterns such as the bearish engulfing pattern, the pin bar and the bearish piercing pattern would be of interest.
Figure 2: GBPUSD’s Blue Box
What if price continues lower instead? That could prove interesting. There are three potential zones of interest, as shown in Figure 3 below.
Figure 3: Zones of Potential Support
The three zones are:
1.2803-1.2993
1.2088-1.2356
1.0746-1.1208
Traders who believe that the sell-off was overdone might choose to take longs from these zones. However, it is worth bearing in mind that to do so would be to countertrend trade, and thus it would be wise to take most profits quickly, leaving only small positions to run.
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