Sterling Firms Into Brexit Vote
Dragonfly Capital | May 27, 2016 11:00AM ET
All U.S. eyes are on Janet Yellen and the FOMC meeting in two weeks. It's an important event for the whole world for sure. But across the pond they are also looking beyond this to the vote to whether the UK will leave the European Union. They've dubbed it 'Brexit'.
I have not paid much attention to what is going on in the UK at the ground level since 1999 when I was asked to move from London back to Boston, but it seems silly on the headline level that the UK could not be part of Europe. It's not my decision and I certainly don't know the intricacies. What I do know is that the British pound, which fell during the entire back-half of 2015, is strengthening into the vote.
Since making a low at the end of February against USD, sterling has been plodding higher. There have been a series of higher highs and higher lows. The end of April marked the first major milestone, breaking above the February bounce level. The action is forming an ascending triangle. The break of the triangle would target an 8-handle move, which is huge.
Will it break to the upside, back to its pre-Brexit range? Or is this just a bearish consolidation in a move lower? I vote for the former. The momentum indicators are what swings the vote for me. The RSI is in the bullish zone and rising with the MACD rising and in positive territory. That does not mean the triangle will break anytime soon. There are certainly two catalysts in the next 3 weeks and it could wait for both to clear the range.
So what's your vote?
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