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Article / 23 June 2016 at 11:19 GMT

FX Techs: Major GBP and other FX levels post-UK referendum

Head of FX Strategy / Saxo Bank
  • Market is rapidly pricing in a Bremain outcome
  • GBPUSD focus on 1.5000 having punched through 200-DMA
  • On a Brexit, all bets are off on all levels for Cable
  • EURGBP beta plunges as market understands EU existential risk

By John J Hardy

The market is rapidly pricing in a Bremain outcome and assuming a GBP-positive and risk-appetite positive response on the relief of having this enormous event risk in the rearview mirror. The alternative view is that we are seeing an ugly squeeze on a speculative market that is caught the wrong way (short sterling) ahead of the vote. Either way, this post takes a stab at identifying key levels of note on the other side of the vote outcome overnight. Technical waypoints may prove less reliable in a Brexit scenario due to the possibly wildly large trading ranges, given that the market is rather aggressively pricing in Bremain today.

The charts below look at possible eventual targets should the Bremain vote trigger further enthusiasm for sterling and risky assets and at possible implications of a Brexit vote on levels. It's also entirely possible that in a Bremain scenario, markets sell the fact and we end up bogged down in the range . The levels mentioned in the case of a Bremain, therefore, should be seen as technical waypoints should the action extend, not as forecasts


We've punched through both the 200-day moving average and the key 1.4770 area range highs in yesterday's and today's action, rapidly bringing the next levels of interest into view. These include a possible focus on the 1.5000 round number and, more technically compellling, the 1.5130 area, which is the 61.8% Fibo retracement of the entire sell-off sequence from the June 2015 highs. Strategic shorts may get involved here if the rally slows here. If the rally bursts through this area as well, risk extends toward 1.5450. Bears in a Bremain scenario will look for sharp reversals that take us back through 1.4750 and lower (200-day MA at around 1.4675, for example). On a Brexit, all bets are off on levels, with a return to 1.4000 in a heartbeat quite possible and even extension to the very long term support level at 1.3500 (goes back to the 1980's) with eventual levels lower still.
 Source: SaxoTraderGO


The beta of this pair to the referendum has dropped considerably as the market has picked up on the systemic risk to the EU story. So even the latest remarkable squeeze in GBP has failed to see new local lows yet in EURGBP as the referendum clearly also has a bearing on the euro. Levels to look for from here are the nominal lows from late May at 0.7565, also coincidentally coinciding with the 200-day moving average, and then the 61.8% Fibo just above 0.7400 looks like a plausible target for EURGBP downside on a Bremain vote that sees the sterling rally extend. The upside potential on a Brexit scenario, meanwhlie, may be more or less contained within the range that extends to the 0.8100+ highs if we are right in assuming that the euro will also see some negative attention on a Brexit as well, with the test of that notion coming in the 0.8000 area.
  Source: SaxoTraderGO

For GBPJPY, the powerful rally already has the pair pushing on the Ichimoku cloud level  and then some near 157.50. A further rally from here could quickly see the pivotal 164.00 level coming into play -which is also near the 38.2% retracement of the entire sell-off sequence from the mid-2015 highs. In a shock Brexit scenario, it's tough to determine the potential, but a push to 140.00 might be a starting point, an approximately 10% move.
  Source: SaxoTraderGO

EURUSD is punching on a key area ahead of the vote - the 1.1400 level which was a sticking point in the recent past and the nominal 61.8% Fibo retracement at 1.1420 area that held once already earlier this month. In any case, further upside enthusiasm on the (temporary?) fading of EU existential risks in a Bremain scenario will look at whether the 1.1500 area holds on a closing basis and barring that, there is some risk for a fresh extension to 1.1700+, the old highs from 2015. To the downside, 1.1000 might trade in a heartbeat on a Brexit scenario, with action pushing lower stil toward 1.08 to 1.09 quickly.
   Source: SaxoTraderGO

The JPY has picked up more focus today on the extreme confidence markets are suddenly showing. This has USDJPY pushing on the key resistance area at 105.50 and more and a fully risk-on world post a Bremain vote could see the market second questioning its recent focus on Bank of Japan policy futility as the focus shifts to higher rates and carry trades. In that scenario, the daily Ichimoku cloud to the upside could quickly come into focus - a bit dynamic now, but with the upper bound of the cloud near 110.00. A Brexit scenario, meanwhile, could very quickly lead to the pair trading toward 100, a critical area on longer-term charts. 
  Source: SaxoTraderGO

– Edited by Clare MacCarthy


John J Hardy is head of FX strategy at Saxo Bank 
23 June
Arsh Arsh

Brexit confirmed by Britain

Bremain confirmed by EU
23 June
Kay Van-Petersen Kay Van-Petersen
Great data points on potential ranges on the landscape out there. Remember folks, liquidity is going to be a potentially big issue! Much bigger than people are really accounting for.
23 June
John Roberti John Roberti
John, what do you think USDCAD could do on a bremain scenario because you are talking in this scenario of a serious decline of the dollar but cad is clearly weak on fundamental with the data of the fires in Alberta coming soon on may statistics (bank of Canada is talking of -1/4% gdp quarter two and -20.000 employments for may). Furthermore what do you think about oil prices? Again, if you assume a decline of the dollar, oil prices should go up, despite the growing glut? Thanks I advance for you opinion


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