Forex FOREX PRO WEEKLY #2, December 10-14, 2018

Sive Morten

Special Consultant to the FPA
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Fundamentals

Taking in consideration the exceptional importance of coming event, I mean Brexit voting on Tue, today we take a look at GBP, add some fundamental analysis and see what technical picture tells us.

Yesterday we've talked about major issues of coming voting in our report, dedicated to EUR. Here we add some details on coming event.

In the beginning I would like to share with my personal view. This is not the call for trading, guys. I just try to take in consideration some factors that stand on higher level and do not have direct relation to voting. I mean global political processes. Geopolitical situation shows the signs of gradual secession of US and EU in all spheres - politics, economy. UK is all-time US ally. Actually US historically initially was a UK colony. Although they have become different countries as ages passed, but the single core holds between them. Combining these two moments I would suggest that UK should stay with US as it always was.
Yes, I know that now it is least probable scenario that Brexit voting will pass through Parliament. But would bet on this result, because it is driving not by some undercover political squabbles in UK Parliament but by higher level political agreements. This is just my opinion, and I'm not pretending, of course, on the ultimate truth.

Now let's see what we have in mass media.

Reuters reports - as lawmakers gather in Britain’s parliament on Tuesday to vote on the future of the country’s relationship with Europe, traders in London’s financial hub will be bracing for a potential burst of market turmoil that could affect the Brexit process itself.

Sterling plunged more than 10 percent in the immediate aftermath of Britain’s shock vote to leave the European Union in June 2016, while $2 trillion was wiped off global stock markets.

This time, traders expect a more muted response. Prime Minister Theresa May is widely expected to fail in her attempt to win support for her Brexit plan, meaning the immediate market reaction could be limited - unless there is a surprise.

But as her failure would usher in yet more uncertainty over the Brexit process, big market swings may follow - and some commentators have suggested heavy market losses could even convince lawmakers to back May if she tried for a second vote.

“On the morning after the 2016 referendum result the London Stock Exchange kind of broke because there were such wide spreads on stocks, market makers weren’t finding prices,” said Laith Khalaf, senior analyst at Britain’s biggest direct investment service Hargreaves Lansdown. “We are less likely to see turmoil like that as people are ready for a range of outcomes this time, but we could see some big swings,” he said.

Either way, banks and brokerages will be prepared.

Barclays, Investec, JPMorgan and Nomura are among banks in London planning to draft in traders and analysts outside of normal business hours on Tuesday, sources familiar with the matter said, as they prepare for an influx of calls from investors keen to understand or make bets on the implications of the vote.

With the result not expected to become clear until around 1900 GMT, London’s stock exchange will be closed, meaning it will be sterling - traded 24 hours a day around the world - that will react first.

“We’re preparing for the big day and night by bringing sleeping bags into the office and have mini golf and pinball in our break out area, so we can keep the traders busy during any quieter hours,” said Samuel Leach, CEO of Samuel & Co. Trading.

Nomura has booked hotel rooms in the city, a bank spokesman said, for bleary-eyed traders to use if necessary after a night that could set the future for the 2.8 trillion pound ($3.6 trillion) British economy for generations.

“We are going to be glued to our trading screens or television wherever we are,” said Neil Jones, head of hedge fund foreign exchange sales at Mizuho, another Japanese bank, in London.

Across the world the same euphoria stands:

“If we see it becomes a true volatility event, then the ability to step away from the desk will be challenged. Of course, arrangements will be made to feed the troops and no doubt there will be a few ales after to unwind,” said Chris Weston, head of research at currency broker Pepperstone in Melbourne.

May’s compromise Brexit deal has dismayed both supporters of a more decisive break with the EU and those who want ties to remain as close as possible. Her reliance for a majority in parliament on a Northern Irish party that opposes the deal has made her position even more precarious.

Should she defy the odds, analysts say shares in sectors most directly exposed to the British economy such as banks, insurers, homebuilders and retailers could surge.

If May fails, however, it could send shockwaves through a financial industry that has been hoping Britain would move into a transitional deal with the EU until the end of 2020.

“This vote is a lightning-rod realization for some clients, that two years of ministerial resignations, chit-chat and speculation comes down to this: in three months we could be crashing out of Europe,” said Matthew Hudson, CEO of MJ Hudson which advises more than 600 institutional and retail investment firms.

Defeat for May could see asset managers immediately move to open offices in Europe to ensure continued access to EU markets in the absence of a deal with the bloc, Hudson said.

“I’ve got clients who are ready to push the button the minute she loses,” he said.

“Volatility is increasing,” said Ulrich Leuchtmann, an FX strategist at Commerzbank in Frankfurt.

“It seems the proposed deal is going to be rejected so delaying the vote could be an option for May,” he added.

The Times newspaper reported on Thursday that senior ministers were urging May to delay the vote for fear of a rout but her spokesman has said it would go ahead as planned.

A defeat on Tuesday could open up a series of different outcomes to Britain’s departure from the EU — each with its own impact on sterling — ranging from leaving without the deal to holding a second referendum on membership.

Most observers still expect some kind of deal to be reached eventually with polls forecasting the pound will firm to $1.29 in a month and $1.34 in six months.

Still, fears of a no-deal Brexit skewering Britain’s economy in less than four months’ time are reflected in heightened volatility and outright short positions held by hedge funds.

The growing chance of averting Brexit altogether — potentially via a second referendum — has led some investors to start pricing out the prospect of a damaging “no deal” departure from the EU, analysts say.

And now guys, let's take a look at CFTC report since the middle of September. Today we do not have fresh report, the last one that we have stands at the end of November, but, take a look how overall position has changed. Investors prepare to rally, guys. Speculators have closed ~50% of short position while keep longs intact. Hedgers have increased shorts for 40% - they take hedge against possible upside action. All this stuff happens on background of rising open interest.

upload_2018-12-9_12-53-13.png


This makes me think that chances on Brexit passing are not as bad as it is shown in news.

Within two months net short position on GBP has decreased 2 times:
upload_2018-12-9_12-57-29.png

Source: cftc.gov
Charting by Investing.com

Technicals
Monthly


Today guys it will be special report, dedicated to Brexit voting. Currently we're interested in what could happen depending on voting result. Nomura Securities suggest that price change could be around 6% as result of voting. Thus, upward target stands around 1.35, if vote will pass, while downside target stands around 1.20.

Generally speaking, with positive result we should get some AB-CD upside action, while negative scenario in fact triggers downside trend continuation. At the same time, guys we should understand that even positive voting and action to 1.35 or higher will not change UK fundamentals that stand poor. We could get AB-CD upside action on monthly chart, but this will be just postponing of downside continuation, as '222" sell pattern will be formed.
In fact, both scenarios suite to our bearish view, they just show different action inside the same long-term trend, which is too large. To break the major tendency here, GBP has to jump above 1.72 area.

If market will drop back to 1.20 lows, this could lead to further downside acceleration, stop grabbing below them, and gradual action to our 0.95 target which is monthly OP.

BoE hints on thus subject recently as well. "Britain risks suffering an even bigger hit to its economy than during the global financial crisis 10 years ago if it leaves the European Union in a worst-case Brexit scenario in four months’ time, the Bank of England said"

gbp_m_10_12_18.png


Weekly

We've talked about this picture couple of weeks ago, when some opinions on upside reversal have appeared, while we disagree with this. Both grabbers that were formed here have failed and market shows bearish pressure here, gravitating to 1.25 COP target.
But, at the same time, weekly butterfly is forming, which is bullish reversal pattern. It is difficult to suggest what precisely will happen on Tuesday, but it is possible that market could drop and complete 1.25 target on anticipation of "bad" result - voting failure. When "good" result will be released - price drastically turns up. Maybe some spikes will be here, just because of volatility on low liquidity market, this is also possible.
But, if you intend to trade this on a long side - 1.25 is the level that you should take in consideration.
gbp_w_10_12_18.png


Daily

Here we already see market nervousness by price action of recent week. A lot of "high waves" candles and no real direction. Reaction on our "222' Buy was minimal, just 3/8 retracement has happened and market continues downward action.

Now we also could point on some patterns - AB=CD and butterfly, more you could find on intraday charts. But what is really important here - daily oversold level. It stands precisely around 1.25 area. Thus, it is relatively clear what to do if you want to buy. But it is a bit more difficult with bearish position. Here, on daily we see just Overbought area and Fib level around 1.2950 area. If market gets there, by "pre-voting" volatility, this is something to watch for.
gbp_d_10_12_18.png


Intraday

Here is more patterns on intraday charts. First of all we have upside XOP, which stands in agreement with daily OB and Fib resistance and potentially it creates solid resistance area that might be useful for short entry for those who wants to take position on voting failure.

We also have here potential 3-Drive "Buy". But it has 1.26 destination point, while we suggest possible drop to 1.25 on weekly/daily basis. MACD divergence stands here as well. Currently it is difficult to suggest, how situation will develop, just keep in mind this pattern is well.
gbp_4h_10_12_18.png


On 1H chart we mostly have channel. As you can see, intraday price action is too choppy and it is difficult to find something valuable there. Channel has too small range, definitely it should be broken as voting will take place. But, the direction of breakout is not necessary will coincide with final direction...

gbp_1h_10_12_18.png


Conclusion:

Today we've made an attempt to prepare for coming Brexit voting and estimate potential levels that could be suitable for position taking. In general, whatever direction you intend to trade - it would be better to reduce position volume to minimum and place extended stop to avoid occasional wash out by market makers games. That should be good preparation for strong volatility.


The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
 
Morning guys,

So, as Brexit voting has been postponed, we could take a look at gold market again. Gold shows confidence, all negative events provide additional support to gold - problems on stock markets, Brexit postpone, turmoil in France, that could increase chances on dovish ECB statement this week etc.

On technical picture we also see bullish signs. First is, very small reaction on our OP target and OB level. In fact there was no retracement and market continues move higher. Reaction on 1.27 butterfly target is also very small. Next destination point is 1256, while our major target here stands at 1265-1267.
gold_d_11_12_18.png


On 4H chart XOP target of our H&S pattern stands at the same 1265. Take a look how market reacts to OP - no pullback at all.
gold_4h_11_12_18.png


On 1H chart we have few moments. First is solid breakout through MPR1 and WPP. This confirms idea of medium-term upside trend. Second, we have hidden bullish divergence with MACD, which also suggests upside continuation. Currently we do not have some clear patterns here. So, it is possible to drop the time frame even more and try to get some "222" Buy or something for long entry. Market moves with big amount of very small steps and almost without retracements. It makes difficult to get the pattern on large time frames.
gold_1h_11_12_18.png
 
My view on GBP.

On intraday charts I believe wave 3 is completed and now bullish wave 4 started. I expect it to have ABC, 335 structure as flat or expanded flat.

1 H CHART:

GBPUSDkH1.png


15 MIN CHART:

GBPUSDkM15.png


How to trade this?

First position: buy entry zone=1.249-1.251, TP zone = 1.2550-1.2570, SL zone = 1.24-1.247
Second position: Bearish wave 5 should start in 1.2550-1.2570 zone, short entry there, TP=1.2460, SL=1.2620
Third position: Buy entry zone = 1.2430-1.2460, TP zone > 1.30, SL = 1.240, this position provides risk/reward ratio over 1:20. It could work if we have positive surprise with Brexit. Expectation is negative, and all that negativity could provide great fuel for bullish reversal if positive surprise happens. Technically zone 1.243-1.246 should provide some bounce to the upside regardless of Brexit news. That way we could put SL on break even and hope for positive surprise around Brexit.
 
Important update on GBP! Please read.

This could be trade of the year if I am proven correct. I believe we found long term bottom in GBP on level 1.2480, or very close to it, let's say zone of 1.24-1.2480.

I see huge bullish potential for GBP at the moment. Every piece looks like it is on right place. I am going to chase targets in zone 1.34-1.37.

Here is my full and deep view on GBP. I am going to trade only GBP/USD not other pairs for next few months if I am proven correct.

Everything is shown on my graphs.

MONTHLY:

GBPUSDkMonthly.png


WEEKLY:

GBPUSDkWeekly.png


DAILY:

GBPUSDkDaily.png


4H:

GBPUSDkH4.png


1H:

GBPUSDkH1.png


5MIN:

GBPUSDkM5.png


How I am going to trade this?

Chasing bullish retracement after drop from 1.4382, bearish wave 1 on weekly chart looks like it is finally completed. Targets are 1.34-1.37 zone. SL=1.24-1.248, level 1.2480 very important to hold, entry zone 1.2490-1.27.

I am already entered position on level 1.2494, my SL=1.2470, TP zone=1.34-1.37.

Risk/reward = 1:50, wonderful!
 
Greetings everybody,

Situation on gold market mostly stands the same, it keeps bullish sentiment. The only difference here is deeper reaction on 1.27 butterfly target. Daily chart shows natural support/resistance area around 1235 level, where OP target stands. As gold has the habit to re-test broken areas, it is very probable target of retracement:
gold_d_12_12_18.png


On 4H chart we have to levels to watch for. First one is 1235, as we've said. This is also Agreement area of downside XOP and Fib level. Second is 1229 K-support. 1235 is cornerstone of retracement. Upside action could be re-established either right from it, or, later we could get H&S pattern. In this case we will watch for 1229 area. But, anyway, there will be solid upside pullback from 1235 and it will be more than enough to move stops to breakeven. That's being said, we're waiting for 1235 and see what will happen there:
gold_4h_12_12_18.png
 
Greetings everybody,

Today we take a look at GBP. As you can see on gold market is nothing new. So, Cable has got some support, at least, by positive voting on T. May ministry. This political event supports our technical view on possible pullback on weekly/daily basis.

As we talked in our weekly report - our major target is 1.25 and upside action could happen only when it will be reached. This has happened - weekly COP is completed:
gbp_w_13_12_18.png


On daily chart it is also accompanied by oversold. In general, we easily could recognize here the nature of engulfing price action, right? Fast drop and fast return. This lets us to suggest some AB-CD action on intraday charts. There are two levels ahead - 1.27 and 1.28 K-resistance. First one is also natural support/resistance zone:
gbp_d_13_12_18.png


Hourly chart is interesting, because here you can see how external political events skew normal technical price action. Here we have upside reversal swing and commonly, market shows deep retracement after. But, once T. May support has been announced market turns up immediately. This makes situation tricky - whether deep retracement will happen or not?
Here is two ways to act. First one is for conservative traders - just wait for deep, 5/8 retracement here and may be "222" Buy pattern, as you can see a kind of reverse H&S shape. We have 1.27 resistance ahead, so retracement has not bad chances to happen.
If you're more aggressive trader - you could try to take long position on minor retracement against "C" lows as well. Anyway, short-term context stands bullish here. Potential target of retracement creates Agreement with daily K-resistance area:
gbp_1h_13_12_18.png
 
Good morning,

Gold finally starts to show some progress with our retracement trading plan. On daily we see that reaction on 1.27 butterfly target continues:
gold_d_14_12_18.png


For retracement target we've estimated two levels. First one is 1235 Fib support and XOP Agreement area, second - 1226-1229 K-support. If no collapse and nasty black candle will happen - our trading plan suggests first entry attempt at 1235 level. Once market will jump up - move stops to breakeven and then watch what will happen around 1242. Downside reversal there tells that we could get H&S pattern and deeper AB=CD retracement right to our K-support. In this case we just will wait when this will happen to make second entry attempt. If no reversal around 1242 will happen - everything is OK, we're going higher.
gold_4h_14_12_18.png
 
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