The ‘Big Money’ sold the GBPUSD heavily in anticipation of a UK vote for BREXIT leading to continued weakness, but the FTSE 100 immediately rallied on the following day – much to the chagrin of all those doom-sayers! Rising share prices reflect an expectation of higher future earnings and thus increased dividends; the implication being that the ‘City’ expects UK businesses to do better once out of the strictures of Brussels’ regulations.
Yesterday (17th January), Theresa May gave a speech reaffirming the UK’s intention to fully withdraw from the EU and the GBPUSD rallied sharply on heavy volume.
The pair has been in a long-term down trend since the 2008 crash, but in the shorter time frame it has been in a trading range since last September. Monday’s gap-down attempt failed to penetrate below the prior September low, despite considerable volume in a narrow trading range implying certain large interests were absorbing the selling prior to yesterday’s speech and this was confirmed by yesterday’s price action.
After yesterday’s potential sign of strength on the righthand side of the trading range we need to see some confirmation that strong buying was present, with follow-through to the upside in the coming days. If today sees a low volume down day it will represent a ‘testing’ by large interests for selling pressure which will be confirmed if demand is present that results in higher prices to test the key November high.
The long-term down trend is still in effect, however we may be witnessing some initial strength in the pair which may be in the process of bottoming out and being accumulated by large interest in anticipation of further strength in the years ahead. This strength might be fuelled by European capital flowing out of the EU into the City of London seeking better opportunities outside of the confines of the EU.
NB. The above chart is from a free source on the internet and I have no idea how accurate the price and volume data are and upon which this analysis is made.