GBP pulls a surprise move after May's failed Brexit vote
It was around January 11 that the penny dropped for me and I saw that every way I looked there was opportunity for the GBP to appreciate. Here was my article.
Here were my conclusions from then:
All that is to say this - I see a potential for upside to the GBP from here. Look at the options -
- May loses the vote - Potentially opens the door for Corbyn and second referendum - GBP appreciates.
- May wins the vote - GBP appreciates
- May postpones the vote by extending Article 50 - GBP appreciates.
The difficulty of course was/is the timing. How was the pound going to react to the actual vote being rejected (which was expected). I saw an initial sell in the GBP, but I was surprised by the speed in which the GBP appreciated. The consensus view that was moving around just prior to the vote was that the GBP's reaction would all depend on the number of votes that May lost by. A loss of more than 100 votes was seen as being bad news for May and would signal a sharp drop in the GBP.A small loss of around 20 votes or so was viewed as positive for the GBP. You can check out some of these forecasts here collected by Bloomberg. Reading them back in hindsight is quite interesting since many of the Bank analysts foresaw a potential for the GBP to rally, but the dots were not joined. However, some people joined the dots pretty quickly and saw that the chance of a no-deal Brexit has now nearly completely receded. That was clearly the case in the event.
Looking at the price action you could have seen that something was wrong within a very short period of the vote result announced. Looking at the 15 minute chart price but in a massive bullish engulfing bar consuming around 13 or so of the previous 15 minute candlesticks. It was a big tell and I was long shortly after that.If you had missed that you could have seen price cracking through the 100 moving averages on the 5 minute, 15 minute, 30 minute, and 1 hour chart. There was no need to get badly burned, as long as you had your leverage under control.
One takeaway lesson is look at the price and pick your levels,, don't marry your positions or your bias. You/I/we can be wrong. In fact, being wrong is just part of the business, don't worry about it unduly it comes with the territory, If you get too proud or cocky or believe your own hype then you are likely to blow your account through stubborn and proud trading behaviour.
The other takeaway lesson is that the outlook for the GBP looks good. With a no-deal scenario moving further and further away I see plenty of scope to rally in the medium term. There will still be 2 way business to be had on a day to day basis, but on the weekly and monthly charts I favour GBP strength from here, subject to a no-deal / some other similar disaster.
