Trade view /
27 June 2016 at 13:05 GMT
Jumping on a crowded bandwagon is usually a risky venture but in the case of GBPUSD the bandwagon has not yet reached capacity. The UK vote to exit the European Union was a surprise to markets, no doubt about it. The collapse in GBPUSD is the evidence.
The magnitude of the move is also evidence that the GBPUSD has further to fall. The market is still long GBPUSD. There is simply no way that all the long GBPUSD positions were squared up on Friday and this morning. Many traders, institutions, funds etc. are hoping/praying for a bounce to sell which arguably will limit GBPUSD gains. In addition, the move is too fresh to see much of a turnaround in direction.
Sterling has been crushed before. It might not have lost as much in a single day, but Maggie Thatcher and her economic policies helped drive GBPUSD from 2.4232 on January 5,1981 to 1.0140 by January of 1985.
The UK/EU divorce may become amicable over time but for now, the fine china and cutlery are still flying through the air. There is plenty of room for more GBPUSD weakness.
Management and risk description
This is an opportunistic trade that has very little technical support due to the magnitude of the GBPUSD decline since Friday. In fact, it is mostly “gut feel” but supported by the initial overwhelmingly negative prospects for the UK economy and the “dog’s breakfast” of the current UK political situation.
The stop will be triggered on any profit-taking rally or new conciliatory talk from the EU.
Entry: sell ½ position of GBPUSD call at market (currently 1.3185), balance 1.3235.
Time horizon: five days.
GBPUSD 30-minute with stop-loss noted:
USDCAD hourly with post-Brexit levels:
Source: Saxo Bank
GBPUSD weekly from 1985 with Fibonacci retracement levels:
GBPUSD from 1971 (sterling has collapsed before):
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— Edited by Michael McKenna
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