GBP and the Brexit Negotiations
The brexit news may dominate December, the last month of 2017. Last Friday an inaccurate coverage by ABC of Michael Flyyn’s guilty plea triggered some volatility in the market but it was an isolated event. Aside brexit-related news the Fed monetary policy is one the key events this month. The ECB already announced the extension of the current QE in its prior meeting.
In an event there will be in indication we are heading for a hard brexit, which is exiting the EU without a deal the central banks’ monetary policies may have a significant impact on the market.
Monday (tomorrow) is a deadline for the UK to propose a new offer to the EU. The main issues are the divorce bill, which according to some reports the UK is willing to increase its offer, EU citizens’ rights following the brexit and a boarder between the UK and Ireland.
There has been many reports over the weekend regarding the upcoming meeting. For the benefit of new traders that recently joined us the brexit can be reversed although it will take time to determine whether the UK wishes to step in this direction. One of the possibilities is to simply exit and then re-join the EU. The odds for a second referendum are minimal at the time of this writing.
The US tax reforms were passed over the weekend, which at the time of this writing is the trigger for the gaps that are expected to take place at the opening of the Foreign Exchange (Forex) market.
EURGBP Brexit Strategy
EURGBP is a currency pair we have been monitoring for some time. We would like to display EURGBP monthly and weekly charts.
EURGBP Monthly Chart
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EURGBP Weekly Chart 03/12/17
EURGBP Weekly Chart
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EURGBP Weekly Chart 03/12/17
EURGBP monthly chart displays the bearish engulfing that has been invalidated by the market as it was followed by 2 inverted hammers. It is far from being a conservative firm entry but it does act as a warning signal that the price may correct higher.
In EURGBP weekly chart, 0.8325 marks the neckline of the initial top Head-And-Shoulders (H&S) that was later invalidated by the market. The neckline of the new H&S (in blue) was re-tested by the market following the weekly close. Since the beginning of October EURGBP was held in a range.
By the book, once the neckline gives way further selling is then expected, targeting 0.8325. However, due to the monthly warning signals it is possible the neckline will hold or alternatively post a false breakout. As we are aware GBP may react violently to any news regarding to the brexit we have to be very cautious is our approach.
GBPAUD Brexit Strategy
GBPAUD may support our views for a firm AUD although we were reluctant to increase our exposure to the Australian Dollar (AUD) at the monthly close.
GBPAUD Weekly Chart
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GBPAUD Weekly Chart 03/12/17
GBPAUD Daily Chart
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GBPAUD Daily Chart 03/12/17
GBPAUD weekly resistance (1.7840) is the monthly resistance we were aware of at the monthly close but were reluctant to short GBP. The daily chart does provide a firmer signal for a short entry in the cross. GBPAUD may correct higher on Monday, which may then provide a better price for a short trade.
There is no guarantee such retracement will materialize but in most past scenarios it does take place. We must highlight these corrective gains, if materialize do not provide a long entry. The price may re-test the daily high before reversing lower. These potential gains may be as a result of a weak AUD or a firm GBP.
We have the ability to layer a sell limit order, however, we are uncertain we wish to increase our exposure to AUD at the time of this writing. As GBPAUD corrective gains may be due to GBP a wiser approach may be to wait for Monday’s session.
We would also like to display GBPJPY and GBPUSD weekly charts.
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GBPJPY Weekly Chart 03/12/17
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GBPUSD Weekly Chart 03/12/17
We noticed the re-test of 147.43 in GBPJPY weekly chart. We did not opt for the trade as the prior re-tests were below 147.43, which has the tendency to weaken the support level. Following the weekly close GBPJPY is held in a range, the resistance (151.95) was re-tested following the weekly close.
GBPUSD weekly chart displays the neckline that we have capitalized on in our prior signals. There is no evidence the price is due to reverse lower in GBPUSD at the time of this writing.
Based on all the above, there may be a short-lived bearish spike in GBP pairs and crosses before a resumption of the uptrend. As these are long time frames the selling, if materializes may last anywhere between 24 hours to 7 days.
There are too many scenarios that could trigger such weakness. If we dismiss any brexit-related news the UK CPI next week may be the trigger. We are not convinced at the time of this writing the US Non-Farm Payrolls (NFP) may be a dominant factor in GBP pairs and crosses.
EURGBP Trade Alert
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EURGBP 4hr Chart 05/12/17
The entry is far from being a conservative entry and we aware if the entry is mistimed it may trigger the protective stop within 48 hours. The required protective stop is well over +200 pips, which is too high.
The reason why we are attempting to long EURGBP following the daily close is the potential target, which is approximately +160 pips. We are not expecting gradual gains but a single or couple of spikes that may lift EURGBP higher.
EURGBP long at market price (ask 0.8802)
Take profit: 0.8960
Protective stop: 0.8724
Risk Ratio (RR): 1 : 2.1 (approx.)
Estimated duration: 8 days (approx.)
Price range: Relevant as long as EURGBP is below 0.8818
Note: The potential drawdown is a re-test of 0.8780 but we have factored into the protective stop a scenario of a short-lived bearish spike.
06/12/17 UPDATE: There was an assassination plot on Theresa May by terrorists, which has been prevented. The market was displeased with the news, which lead to the recent GBP weakness.
Please click on the chart to enlarge:
EURGBP 4hr Chart 06/12/17
EURGBP manged to post a 4hr close above 0.8830, which is a positive signal although we preferred a higher a close. We are shifting the protective stop to 0.8800 and close 30% of the long trade at market price (0.8833).
The protective stop was later adjusted to 0.8803.
06/12/17 UPDATE II: EURGBP triggered the protective stop at 0.8803, we are not re-entering the market.
USDJPY Trade Alert
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USDJPY Daily Chart 07/12/17
USDJPY short at market price (bid 112.75)
Take profit: 110.65
Protective stop: 113.70
Risk Ratio (RR): 1 : 2.0 (approx.)
Estimated duration: 24 hours (approx.)
Price range: Relevant as long as USDJPY is above 112.45
Note: This is a daily entry. The potential drawdown is a re-test of 113.45. Please note if we are too close to the market prior to the NFP we will temporarily widen the stop due to the spread widening.
07/12/17 UPDATE: It appears there are new reports that the England and Ireland will reach a deal on the boarders in matter of hours. Whether it will materialize or not the market is reacting to these news, which triggered the recent GBP gains and JPY weakness.
The comment was made shortly after USDJPY trade has been initiated but we should add that it does not invalidate the entry at the time of this writing.
08/12/17 UPDATE: We debated whether to exit the trade and incur the loss or shift the protective stop due to the Non-Farm Payrolls. This was a tough decision to make but we are shifting the protective stop to 114.25. The spread will widen and we see the risk USDJPY may spike higher as well to test 114.00.
As we would rather not roll the trade over the weekend we are shifting the take profit order to 112.20. USDJPY is trading at 113.49 at the time of this writing.
13/12/17 UPDATE: USDJPY as we stated not long ago is not NZDUSD. We already remained in the trade beyond our estimated duration. We do see the possibility for further weakness but we are reducing our exposure. USDJPY is trading at 113.03 at the time of this writing, we are closing 40% of the short trade at market price. In addition, we are shifting the take profit order to 112.45.
13/12/17 UPDATE II: There is some indication for weak US Dollar, however, USDJPY is a trade that we are displeased with. To recap, we incurred a kick due to reports of an agreement on Ireland’s boarders on Thursday. We decided to close USDJPY short position at market price (ask 113.12), prior to the Fed monetary policy.
AS THE OBJECTIVE OF THE STRATEGIES HAS BEEN MET THE ANALYSIS IS NOW ACCESSIBLE TO ALL TRADERS
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Last Updated on December 14, 2017