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Chart Of The Day: Pound Falls On Imperiled Brexit Talks

Published 28/11/2017, 13:03
GBP/USD
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by Pinchas Cohen

Ireland, UK Clash on Border; Brexit Talks Imperiled

The pound is falling amid border concerns between the EU's Ireland and the UK's Northern Ireland, a key point that needs to be finalized in the current stage of Brexit negotiations or the EU—which wants no 'hard border' between the Irish neighbors—will refuse to move forward. Unfortunately, any final terms on the issue are now endangered by Ireland's collapsing government.

Though the UK has stated repeatedly that no hard border will be put in place, only electronic monitoring of goods, that hasn't been satisfactory for the EU. As well, Leo Varadkar, Ireland's Prime Minister who is currently facing reelection, has used his ability to threaten the UK on the border front to gain votes among traditional voters with Irish Republican sympathies.

However, all that is for naught in the face of today's deepening political crisis in which Irish Deputy Prime Minister Frances Fitzgerald faces a no-confidence vote over her handling of a whistle blower controversy that could pull down the entire minority government. That's bad news for the UK’s Brexit negotiations, but it could get a lot worse.

A snap election would further drag out Ireland's political problems and complicate the UK's ability to move Brexit talks along. And naturally that would put additional pressure on the pound.

GBP/USD Hourly Chart

Sterling has completed a H&S top on an hourly basis, whose downside breakout also took it below its rising channel. The hourly close was on the lowest price, clearly showing that bears are in full control.

Minimum Target Price: 1.3238

The target price is measured according to the height of the pattern, as the traders who formed it are expected to play out the range of emotions that formed the pattern to the downside in the first place. The height of the head is 1.3382 and the neckline where the pattern’s lows meet is at 1.3310, rendering the height 72 pips. That makes a minimum target of 1.3238.

Trading Strategies

Conservative traders would skip this trade, as the pound is still within an uptrend on the main daily chart.

Moderate traders may short the pair in the short-term, acting as conservative traders do when entering a trade in which all time-frames are within the same trend. That would include waiting for a full return-move to retest the neckline’s expected resistance, as traders would have “joined the program,” upon seeing the neckline penetration, signaling the short-term trend reversal. Resistance is confirmed when the price hits the neckline and falls enough to cover the previous up-hour.

Aggressive traders may wait for a return-move to the neckline or enter a short position now, providing they can afford a stop-loss above the 1.3310 neckline or the risk to their account equity.

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