The Forex Chronicles

The Effect Of ‘Brexit’ On The GBP/USD Pair

by Leave a Comment

When I last wrote about this pair back in October 2015, I mentioned at the time that this was at a critical point because a decisive break downwards through the trendline could potentially lead to a sustained move to the 1.46-1.48 area.

As it turned out, the price fell a lot further than that because the growing threat of a realistic withdrawal from the EU, annoyingly referred to as ‘Brexit’ by the British media, prompted it to fall to 1.3836 at one point.

At this moment in time, the bookmakers are quoting odds of 4/11 that voters will ultimately vote to remain in the EU, and odds of 2/1 that they will vote to leave the EU.

So based on the fact that bookies are usually correct on these matters, this would suggest that an exit is still highly unlikely, and the slight recovery of the British pound reflects this fact.

So where does the GBP/USD go from here?

Well the price is obviously going to be heavily influenced by Brexit over the coming months. For example, if Barack Obama and other major political figures voice their opinion and leading business figures continue to have their say, this may influence the opinion polls, which in turn could result in some big price swings leading up to the actual vote itself.

However it’s also worth taking a quick look at the GBP/USD price chart as well because from a purely technical perspective, this pair is trading in a pennant at the moment with converging trendlines, and therefore could be set for a decent breakout when the price moves out of this narrow trading pattern:

GBPUSD_March2016

A break upwards could see the price move towards the long-term 200-day exponential moving average at around 1.48, whilst a downwards breakout is likely to see the price test the recent lows and possibly drop a lot further.

Therefore it is worth paying attention to this pair in the coming days and weeks because there could be a decent trading opportunity at some point, particularly if the price breaks downwards because this will confirm the longer term trend.

Why The GBP/USD Is At A Critical Point At The Start Of October 2015

by Leave a Comment

At this time of the year, the summer holidays are well and truly over and we start to see decent volumes in the forex markets, and large price moves in many of the major currency pairs.

So it’s interesting to take a look at the GBP/USD pair because this is at a critical point right now.

If you take a look at the chart below, you will see that this pair has just managed to fall below the horizontal trendline (indicated by the black line), which will often signal the start of a breakout, but has had a mini-rebound since then (and is in fact moving higher and higher as I write this article):

GBPUSD_OCT15

So it is still unclear whether this is a decisive break, in which case we could see this pair fall to around 1.46 – 1.48, or whether it is going to bounce off this level once again and head back into the trading range that has been established over the last 4 or 5 months.

From a trading perspective, this is definitely not a good trading opportunity at the moment because it really is a 50/50 shot, but if we could get a few more days of consolidation where the price hovers around the trendline, followed by a large down day, this would present more of an opportunity.

That’s because you will often see the price move out of a trading range and break through a trendline before retracing slightly. It’s often the second price move that confirms the breakout.

So we will have to wait and see what happens next.

Why The GBP/USD Has Been Difficult To Trade This Summer

by Leave a Comment

The GBP/USD is many people’s favorite currency pair to trade, but as you may have noticed, this particular pair has been pretty hard to trade in recent months. So why is this?

Well there are a few reasons. First of all it has to be pointed out that many of the forex pairs become a lot harder to make money from during the summer months because many traders are on holiday and volumes naturally drop off.

Therefore intraday price movements tend to be a lot smaller, and that’s certainly been the case with the GBP/USD pair because the average true range indicator (which is a good indication of daily price movements) has been falling since May and is now below 100 points.

This isn’t the sole reason why this pair has been a lot harder to trade, however, because 100 points movement a day is not bad at all when you consider that it was barely trading in a 50-60 point range this time last year.

I think the real reason why people have struggled to generate some decent returns from the GBP/USD pair is because if you look at the daily chart, you will see that the 200-day exponential moving average has been moving sideways since the start of May (indicating a trendless market) and has barely moved away from this key indicator at all since then.

Subsequently traders who trade off the 4-hour and daily charts may well have struggled to make money from this currency pair this summer because price moves in either direction have tended to fizzle out fairly quickly, and short-term traders may also have found it difficult because of the reduced volatility.

So you need to be aware of this if you continue to trade this pair during the rest of summer, but it’s worth pointing out that there are other pairs that are more volatile and are in much stronger trends right now, even though volumes will be lighter for all pairs.

Plus you can always trade other markets such as gold, crude oil and the Dow Jones / FTSE because these have all been very lively in recent weeks.