The British pound has broken down significantly during the trading session on Friday, slicing through a bunch of long wicks to the downside. The 1.20 level underneath is massive support, and ultimately I do think that we break down through there considering that the Brexit now looks very likely to be a “no deal Brexit”, which of course is going to be very negative in general. In the short term though, we may get a short-term rally, but those are going to be selling opportunities as the markets will continue to punish the British pound.
GBP/USD Video 12.08.19
Beyond that, the US dollar is a safety currency so it makes sense that we continue to go lower. If we do break to the upside, it’s very unlikely that we can break above the purple box that starts at the 1.2350 level and extends to the 1.25 handle. I am waiting for some type of exhaustive candle to start selling after a rally or break down below the 1.20 level as it opens up the door down to the 1.15 handle. It’s very difficult to imagine a scenario where the British pound continues to strengthen, at least not without some type of deal. That being said, it does not look like the British can agree with themselves, let alone the European Union. I would anticipate that the base case is that the United Kingdom leaves the European Union without a deal. After we get that massive flush lower, then it’s time to start buying the British pound. However, we are not there yet.
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This article was originally posted on FX Empire
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