As the crucial Brexit deadline of 31 October looms, talks between UK and EU governments have not only intensified but – reportedly – worsened. The hopes of getting a deal done before the EU summit on 17 October seems remote as even a UK government source stated a Brexit deal is ‘essentially impossible’.
The British pound against the US dollar (GBP.USD) has already dropped more than 3% since mid-September which is huge in the trillion-dollar a day currency market. However, this volatility may produce some interesting trading opportunities in the coming weeks. Let’s take a look at the situation in more detail.
The UK Government’s Brexit Proposal Breakdown
UK Prime Minister Boris Johnson tabled a new Brexit proposal which has so far received a lukewarm reception from the EU. The new proposal would see Northern Ireland stay in the European single market for goods but leave the customs union. The government also stated that checks on goods going from Northern Ireland to the Republic of Ireland would still undergo customs checks but away from the border. This – the government says – will avoid a physical border on the island.
However, on Tuesday 8 October, German Chancellor Angela Merkel reportedly told Boris Johnson that a deal would never be possible unless Northern Ireland stayed in a customs union. In fact, all major media news outlets reported that talks have broken down.
The British pound dropped against every other major currency with GBP.JPY and GBP.CHF being hit the hardest. News of an escalation in the US-China trade tariff war also hit newswires at the same time sending investors into safe haven currencies like the Japanese Yen and Swiss Franc, therefore exacerbating the moves in GBP.JPY and GBP.CHF to the downside. In fact, GBP.CHF is providing some very interesting technical analysis clues.
How to Trade GBP.CHF
The long-term chart of GBP.CHF is providing some interesting technical levels, as shown below:
Source: Admiral Markets MetaTrader 5, GBPCHF, Monthly – Data range: from 1 October 2003 to 8 October 2019, accessed on 8 October 2019 at 11:23 am BST – Please note: Past performance is not a reliable indicator of future results.
In the long-term price chart of GBP.CHF above, it is clear to see the blue horizontal line acting as level of long-term support. The blue boxes show the previous times price has fallen to this level and bounced off. Traders will use horizontal support and resistance lines like this for trade entries as well as targets. With the current weakness in GBP.CHF many traders may be eyeing this level as a target if a Brexit deal cannot be made and the UK crash out of the EU in a hard-Brexit.
The lower timeframe also shows that the selling pressure has intensified in recent weeks, as shown below on the weekly chart:
Source: Admiral Markets MetaTrader 5, GBPCHF, Weekly – Data range: from 24 June 2012 to 8 October 2019, accessed on 8 October 2019 at 11:45 am BST – Please note: Past performance is not a reliable indicator of future results.
In the weekly chart of GBP.CHF above the red line shows a horizontal support line which has now turned into a resistance line. Between January and May 2017 price frequently bounced higher from the horizontal red line. There was another bounce higher from it in December 2018 before price finally broke through in July 2019.
After price broke through it came back up to test the horizontal red line, found resistance and has been selling off ever since. It seems sellers are firmly in control. Price is now also below the daily 20-period moving average. This matters as historically the currency pair has been very bearish when price has been trading below this moving average, as the daily chart of GBP.CHF shows below:
Source: Admiral Markets MetaTrader 5, GBPCHF, Daily – Data range: from 20 April 2018 to 8 October 2019, accessed on 8 October 2019 at 11:55 am BST – Please note: Past performance is not a reliable indicator of future results.
The wavy blue line in the chart above is the 20-period moving average. It’s clear to see the bearish nature of the market when price is trading below it. Traders will often use price action trading patterns to help identify daily turning points and to help identify entry and exit levels.
The combination of bearish technicals and a souring fundamental picture could keep sellers in the market for quite some time – barring any positive developments between the UK and EU governments. How will you be trading the British pound during this historic time?
One way is with MetaTrader 5 as you can trade on multiple currency pairs, as well as on other asset classes such as Gold CFDs, Index CFDs like the UK 100 and Stock CFDs, all while accessing superior charting capabilities and much, much more! To download MetaTrader 5 now, click the banner below and receive it for FREE!
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