The British pound continues to be very volatile, and seemingly driven by machines at this point. Every time the British pound spiked higher, it’s only a matter time before we sell off. That’s not a huge surprise considering that algorithms are driving the market now, combing the headlines for signs that there is a Brexit deal. The problem with algorithmic trading is that it’s not very smart, ironically enough. It does not understand nuances in language, so we have seen several examples recently of machines making the wrong trade.
GBP/USD Video 05.12.18
At this point, I think it’s obvious that the 1.27 level underneath is massive support, and if we break down below there are things change drastically. I do think that’s the base case scenario eventually, as the British pound is going to continue to be under scrutiny due to the Brexit negotiations currently going on. If we clear the 1.27 level, the market will probably open up possibilities down to the 1.22 handle, based upon the height of the descending triangle. In fact, I don’t have any interest buying this market until we clear the downtrend line, which I think means that we need to wait into a Brexit deal is inked. I believe that a break down below the 1.27 level will be rather drastic and could send this market much lower in a very rapid descent. As for those rallies, I simply look for exhaustion to take advantage of in order to start buying the greenback again.
