Sterling: Post Brexit
Halal Traders | Jun 27, 2016 03:14PM ET
As we had expected in our last article dated June 1, 2016, sterling rebounded on the daily uptrend channel before resuming the downward pressure and selling tops at around 1.5. The pair then slammed more than 1,700 pips down to the low of around 1.3275 after ‘Brexit’ was officially confirmed on early Friday morning last week.
We were not in the trade as earlier shorts were closed out at around 1.43 as the market rebounded. Fortunately, we were in the FTSE 100 sell stop order that was triggered on Friday, and still riding the expected downtrend.
One thing that retail traders must understand in order to succeed in trading, is intermarket analysis. If you are a forex trader, then it is wise to know how different markets react to one another as they are all interconnected. The demand in UK gilts for example, as well as the UK equity markets, surely affects the demand for the UK currency – sterling.
There is not much we can say in this article as we expect sterling to drift lower, but at current level, around 1.3180 as of this writing, we don’t think it is a good level to sell nor a good level to buy either. Right now, we'd rather place a sell limit around 1.38 to reinstate another short.
Alternatively, the FTSE 100 still offers a good level to sell for those who missed the Brexit trade. We expect the index to drift lower in the weekly downtrend channel, testing the 50% Fibonacci retracement from the low of March 2009 to the high of April 2015 – around 5300 to 5280 - in the months to come.
On the institutional side, Morgan Stanley (NYSE:MS) closed their short at significant gains as target 1.37 was reached post Brexit.
Recent CoT report highlighted that market participants were net short in all currencies against dollar, except yen, franc and loonie, which signifies market fears as confirmed by the kagi chart of the CBOE Volatility Index, a.k.a The Fear Index, which is at its highest in 4 months.
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Halal Traders is currently flat on the sterling.
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