The British pound has rallied again during the trading session on Tuesday, reaching towards the critical 1.28 handle. At this point, the longer-term trend is starting to change but it’s obviously the market can’t go straight up forever. This is a market that has been quite volatile over the last three years, it now seems to be driven by algorithms trading the latest Tweet. There have been headlines during the day suggesting that there is progress being made in Brexit, but at the end of the day nothing’s been decided and it seems as if every time something conciliatory comes out, somebody is quick to suggest that there is still quite a bit of work to do. It is because of this that it’s difficult to trade the British pound right now, and it even more difficult to buy it as it would be chasing a trade that has risen 700 pips or so inches four trading sessions. That’s extraordinarily overdone, especially when you consider that the Monday session was essentially flat.
With this in mind, I recognize that breaking above the 1.28 level tests the 61.8% Fibonacci level, but I also recognize something that is quite crucial: in a move like this we will eventually get a pullback. Once we get that pullback a lot of money will be looking to get into the marketplace so some type of support near the 50% Fibonacci retracement level, or whatever indicator you choose to use, would be a reasonable trade. After all, this could be a trend changing “buy-and-hold” situation.
With all of that, there is another potential scenario: it is possible that perhaps a deal doesn’t get done. If that’s the case, look out below. This pair will almost certainly drop 400 points quicker than you know what to do with it. It is because of that exact scenario that I am waiting on a slow and steady pullback, not some type of meltdown as I do not want to try to catch a falling knife. If bad news comes back out, this market is going to take a nosedive. It is so far ahead of itself right now that a pullback is all but assured, and now it’s simply an exercise in patience, even if things do get worked out in the end. As the greatest trader to ever live, Jesse Livermore once said: “sometimes we get paid to wait.”
