With Brexit just around the corner in the UK, the future remains uncertain for the UK markets. What effect Brexit will have on UK stocks or the British pound is anyone’s guess.
In 2007 British holidaymakers were enjoying an exchange rate of $2 for every £1 which gave them double the buying power, the highest its been in history. Looking at recent activity in the GBPUSD, the pound has weakened against the dollar, and since October 2007 we saw a huge 35% decline from a high of 2.1161, reaching a low of 1.3501.
Such a big move is likely to exhaust price and this is exactly what followed. Price has since been resting as it was held in a 7 year period of consolidation. With such a lengthy consolidation period, we can expect price to trend strongly once it does decide to fully wake up.
The death cross, where we saw the 50 sma cross below the 200 sma in April/May 2015, confirmed a downtrend. Since then, price has used the 50 sma as resistance forcing it further to the downside.
A break below the strong support level which hasn’t been broken since October 2016, which is 3 years, should see a nice downtrend emerge. It has been a while since we saw a strong downtrend, such as what we experienced in 2007/2008 and it wouldn’t be surprising if the same thing happened in the near future.
Below support, we have the 1.1000 round number which may act as support, so caution is advised if short trades are taken. Unless price can move above the 200 sma, we may see the pound continue to decline for some time.
It looks like it's reversing here with a potential deal in sight and so much optimism in the air. Why do you think it'd tank?
Sublime_Trading
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@JonaThan.cong.nguyen, Hi Jonathan. "Think" is not the correct word here. This analysis is based purely on price action. If you were to look at the monthly timeframe, how far back would you say the down trend started?
jonathan.cong.nguyen
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@Sublime_Trading, what are you seeing right now as things stand?
Sublime_Trading
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@JonaThan.cong.nguyen, our stance is what we have said in the blog. The answer to the question posed to you is 2007.