The Weekly Update: GBP UK Referendum Technical Coverage

The Weekly Update: GBP UK Referendum Technical Coverage
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GBP: The UK Referendum

The UK Referendum is scheduled for 23 June (Thursday), 2016 and is considered the most significant risk event in global markets. Britain must decide whether it wishes to remain as member in European Union (EU) or exit, which has been referred to as ‘Brexit.’

GBP enjoyed moderate gains in the Foreign Exchange (Forex) market as the latest referendum polls pointed to a larger majority for the camp that wishes to remain part of the EU. The gains were met by moderate selling on YouGov analysis that dismisses the creditability of surveys that were conducted via phone calls. The recent online polls are still showing a sufficient majority for the camp that wishes to exit the EU.

We have spotted the potential for moderate gains in GBP pairs and crosses in April and were able to capitalize over the expected gains in GBPNZD and GBPUSD. Although the weekly charts are still in favour for a strong GBP it appears the monthly charts are suggesting quite the opposite to say the least. The conflict between the charts indicates the uncertainness that evolves around the upcoming referendum.

GBP Technical Analysis

At the time of this writing we are observing GBP on a technical level only.

GBPUSD Weekly Chart

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GBPUSD_Weekly_Chart_22_May_2016

GBPUSD Monthly Chart

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GBUSD Monthly Char 22/05/16

GBUSD Monthly Char 22/05/16

GBPUSD Technical Commentary

GBPUSD weekly chart marks the potential for reversed Head-And-Shoulders (H&S). Nothing appears to be preventing the currency pair from re-testing 1.4798 and possibly breaking above to reach fresh highs in the market.

GBPUSD monthly chart shows the strength of the 1.4798 resistance where the current gains appear to be a mere re-test before a resumption of the downtrend. What may negate GBPUSD bearish outlook in the monthly chart is a firm monthly close above 1.4798. Following the breakout GBPUSD may extend its gains in the market until the next resistance level is tested.

EURGBP Weekly Chart

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EURGBP Weekly Chart 22/05/16

EURGBP Weekly Chart 22/05/16

EURGBP Monthly Chart

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EURGBP Monthly Chart 22/05/16

EURGBP Monthly Chart 22/05/16

EURGBP Technical Commentary

We have noticed the potential for EURGBP weakness in our prior trading strategy but due to our market exposure we chose to use an entry order, which was unsuccessful as it was not triggered by the market. EURGBP top H&S has been painted on the weekly chart where the neckline is seen at 0.7719. No trades can be taken in EURGBP at current levels as the price must close below the neckline in order to re-affirm the medium-term downtrend.

The monthly chart provides a completely different outlook. We can clearly note the reversed H&S that is being painted at the time of this writing. Once the neckline (0.8005) is violated by the market strong gains may be seen in EURGBP.

 GBPAUD Weekly Chart

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GBPAUD Weekly Chart 22/05/16

GBPAUD Weekly Chart 22/05/16

GBPAUD Monthly Chart

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GBPAUD Monthly Chart 22/05/16

GBPAUD Monthly Chart 22/05/16

GBPAUD Technical Commentary

The difference between GBPAUD and other GBP currency pairs we have quoted on this page is that the weekly chart does not suggest further gains in GBPAUD, which is inline with our AUD technical projections. The 44MA in the weekly chart (in blue) concretes the resistance level. The monthly chart marks the potential for top H&S where the neckline is diagonal rather than horizontal. We are less keen on diagonal necklines but it does not mean the cross cannot retrace lower. Our concern with GBPAUD is the location of the protective stop as it must be placed above the weekly high, which interprets into over +500 pips stop.

GBP: The Technical Conclusion

To conclude, while GBP may be able extend its gains in the Forex market, the gains may be limited before a sharp reversal takes place. It does not necessarily mean Britain will vote to exit the EU. An alternative scenario would be a large majority for the camp that desires to remain in the EU. If the market then believes the UK referendum is no longer a risk event, profit-taking may be seen, which may trigger heavy selling in GBP pairs and crosses.

We are currently favouring AUDUSD. We are uncertain if we will opt for any of GBP pairs and crosses at the opening of the markets on Sunday night, we may decide to initiate a trade if GBP extends its gains this week, which will reduce the required size of the protective stop loss order. There are not shortcuts to the size of the stop. We can attempt an intraday stop but the risk of the market triggering the order will increase substantially.

Due to the technical conflict in GBP weekly and monthly charts it is highly likely traders will incur heavy losses in the market.

EURGBP Trade Alert Details

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EURGBP Monthly Chart 25/05/16

EURGBP Monthly Chart 25/05/16

We have decided to opt for EURGBP based on the monthly chart. We debated whether to take GBPJPY 60min entry but decided to opt for EURGBP instead. We highlight that as this is a monthly entry. EURGBP may trade as low as 0.7586 before reversing higher. Trading as low as 0.7586 is not guaranteed but it must be expected even in an a scenario it does not occur.

EURGBP long at market price (0.7639)
Take profit: 0.7990
Protective stop: 0.7525
Risk Ratio (RR): 1 : 2.7 (approx.)
Estimated duration: 30 days

GBPCHF Trade Alert Details

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GBPCHF 4hr Chart 25/05/16

GBPCHF 4hr Chart 25/05/16

Please note we are using the 4hr chart for the trade. There is an element of risk to the trade due to the stop’s size and the fact if it is not in a profit by the end of the week there is a high possibility the stop will be triggered by the market.

We are confident in GBP weakness, which is why we are opting for the trade.

GBPCHF short at market price (1.4568)
Take profit: 1.4200
Protective stop: 1.4680
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 7 days

26/05/16 UPDATE: GBPCHF is trading at 1.4507 at the time of this writing.

Please click on the chart to enlarge:

GBPCHF 4hr Chart 26/05/16

GBPCHF 4hr Chart 26/05/16

We are closing 20% of the short trade at market price and shift the protective stop to the entry as a sufficient distance was acquired.

26/05/16 UPDATE II: We are shifting GBPCHF protective stop to 1.4556. A break below 1.4480 ma trigger further weakness in the pair. GBPCHF is trading at 1.4506 at the time of this writing.

27/05/16 UPDATE: GBPCHF is trading at 1.4514 at the time of this writing. We are closing 10% of short trade at market price prior to the US GDP data.

30/05/16 UPDATE: We are increasing our short net exposure to GBP in GBPJPY.

GBPJPY Monthly Chart

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GBPJPY Monthly Chart 30/05/16

GBPJPY Monthly Chart 30/05/16

GBPJPY Daily Chart

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GBPJPY Daily Chart 30/05/16

GBPJPY Daily Chart 30/05/16

The entry is based on the monthly chart. We are taking the trade 24 hours to the monthly close as the current levels provide a decent entry. The stop will be placed above 164.00 as there is a risk for stop hunting if 162.68 is breached. GBPJPY will substantially increase our exposure to GBP, we are relying on the monthly chart.

GBPJPY Trade Alert Details

GBPJPY short at market price (162.61)
Take profit: 155.20
Protective stop: 164.70
Risk Ratio (RR): 1 : 3.4 (approx.)
Estimated duration: 30 days

31/05/16 UPDATE: We have shifted GBPCHF stop prior to the opening of the Forex market on Sunday to avoid the widening of the spread. The protective stop was last shifted to 1.4556. Due to stop hunting operations that were conducted during the Asian session (related to end of month flows that took place on 31 May) the market triggered the protective stop loss order, ending the trade with a profit.

31/05/16 UPDATE II: As some have suspected, the latest UK referendum poll gives the ‘Leave’ camp a lead. Two polls were conducted, online and phone calls, both showing a majority for the leave. It is the first time a phone survey is showing a majority to leave for some time, hence the market reaction.

Please click on the chart to enlarge:

GBPJPY Daily Chart 31/05/16

GBPJPY Daily Chart 31/05/16

Although we are anticipating further weakness for GBPJPY, we are closing 20% of the short trade at market price, 161.42.

If you pay close attention to the daily chart you will see how the market gunned down stops that were layered between 162.68 to 164.06. We suspect short trades were placed by algorithms following the daily close. Due to the concentrated amount of stops in the region stop hunting was seen in the Asian session before the heavy selling took place as we have successfully anticipated.

31/05/16 UPDATE III: EURGBP is trading at 0.7652 at the time of this writing. we are closing 10% of the long trade at market price.

31/05/16 UPDATE IV: These are tough decisions but the selling in GBP was too heavy prior to the monthly close, risking a retracement back to our entry.

Please click on the chart to enlarge:

GBPJPY Daily Chart II 31/05/16

GBPJPY Daily Chart II 31/05/16

GBPJPY is trading at 160.30 at the time of this writing,  we are closing 30% of the short trade at market price and shift the protective stop to the entry.

EURGBP is trading at 0.7682 at the time of this writing.

Please click on the chart to enlarge:

EURGBP Monthly Chart 31/05/16

EURGBP Monthly Chart 31/05/16

We are closing 30% of the long trade at market price and shift the protective stop to the entry.

01/06/16 UPDATE: GBPJPY is trading at 159.28 at the time of this writing, we are closing 10% o the short trade at market price, stop remains at the entry.

Please click on the chart to enlarge:

GBPJPY Daily Chart 01/06/16

GBPJPY Daily Chart 01/06/16

The selling is taking place at a faster pace than we have initially anticipated.

01/06/16 UPDATE II: EURGBP is trading at 0.7720 at the time of this writing.

Please click on the chart to enlarge:

EURGBP Monthly Chart 01/06/16

EURGBP Monthly Chart 01/06/16

We are closing 10% of the long trade at market price. Stop remains at the entry.

01/06/16 UPDATE III: The selling in GBPJPY is too aggressive at the time of this writing. We are concerned a room for corrective gains has been created. It is a tough decision but we are closing GBPJPY short trade at market price (157.74).

Please click on the chart to enlarge:

GBPJPY Daily Chart II 01/06/16

GBPJPY Daily Chart II 01/06/16

We will consider re-entering should it retrace. We are leaving EURGBP long trade open in the market. We have finished the trade with a decent profit.

01/06/16 UPDATE IV: The surge in EURGBP as well as GBPJPY created room for corrective gains. While the monthly chart remains intact for further gains, it means absorbing  possible retracements as large as 60 – 80 pips. While EURGBP may extend its gains by approximately 50 pips, it is currently trading several pips above the daily resistance, which is insufficient to affirm a successful breakout at the time of this writing.

We did not expect GBP weakness to materialize on the first day of the month, however, it does how the importance of the monthly, weekly or daily close.

Please click on the chart to enlarge:

EURGBP Monthly Chart 01/06/16

EURGBP Monthly Chart 01/06/16

It is a tough decision but we are exiting EURGBP long trade at market price (0.7760). We will attempt to re-enter following retracements if an entry is provided.

05/06/16 UPDATE: EURGBP retracement was insufficient to re-enter the market. We are aware GBPJPY triggered the take profit of the trade after we exited at market price. Due to the heavy selling we refused to incur a possible kick of +200 pips. Although it did not materialize the possibility could not be ignored.

GBPJPY Daily Chart 5 June 2016

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GBPJPY Daily Chart 5 June 2016

GBPJPY Daily Chart 5 June 2016

We released our preliminary prediction for the UK referendum.

The Weekly Update: GBP UK Referendum Technical Coverage

As all trades in this page are closed this page can now be accessed by all traders. Open trades and relevant intraday strategies are restricted to members only. We have been providing trade alerts in the Forex market since May 2014.
The Weekly Update: GBP UK Referendum Technical Coverage

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The Weekly Update: GBP UK Referendum Technical Coverage

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The Weekly Update: GBP UK Referendum Technical Coverage