Or is it just the calm while we're in the eye of the storm?
Who knows but what we do know is that the quid looks like it's entered the "what now?" stage.
After the moves yesterday the pound is a touch more sedate today. We're stuck in a rough 40/50 range between 1.2800 and 1.2850 and this is a dangerous time for traders.
What we have now is the "what now?" stage of the rally. We've relieved some pressure from the blow out to 1.29 and are maintaining the rally by staying above 1.2800. This period of time is dangerous because both longs and shorts will be getting worried about where we go next. At the moment we have balance and everyone is looking at the clock. The longer we go sideways the more worried traders will get that either their longs aren't going to go much further, or shorts aren't seeing any downward pressure.
All that can lead to further volatile moves if one side starts to assert itself. If 1.2800 (and probably more importantly 1.2770/80) breaks then all these recent longs will start throwing in the towel and we'll get another swift move but down. That move will also be aided by those traders who covered shorts getting back in too.
The opposite happens the other way. If 1.2850 breaks then longs will take the advantage and shorts will start covering again.
We may not see moves as hard and fast as yesterday but think of it like a Newton's cradle, where the first move is big and then it lessens over time. In this case we're only talking a few trading sessions.
Looking at the charts, 1.2800/10 is support ahead of 1.2770/75, that being the prior resistance.
GBPUSD H1 chart
If 1.2770 breaks we could have a swift trip down to the low 1.27's at least. 1.2700 and 1.2675/80 would be important support there.
Up top, after 1.2850 I would be looking for the 61.8 fib of the Nov 2016/Jan 2017 Hi/Lo at 1.2886 to show up as better resistance this time around, particularly in its proximity to 1.2900. A break of 1.29 would need to clear 1.2920 initially and then we might see more shorts folding as the buyers tighten the screw.
I fully endorse Mike's post earlier about the state of play right now. I'm still sceptical of this rally, and the reasons being touted for it but I'm not ready to step in front of it just yet until I see more price action evidence. I still think that there's a breeze of change in sentiment towards the quid but I need more evidence of that. One thing that hasn't changed is the risks, as I explained yesterday. The big dark Brexit cloud is still hanging over our heads and will remain so through and after the elections.
