› Put options for GBP/USD became more attractive.

Put options for GBP/USD became more attractive.

The British pound lost the ground versus all of the major currencies last week, breaking through several crucial technical levels. The uptrend formation was seen in August - September 2018 and it left nothing but the retracement in order to kick out small traders from the market. Put-option buyers were dominating since then, accelerating the pressure from November 7 after GBP/USD charted three consecutive lower highs on all timeframes. Should we see the pound as a falling jack in the nearest future? Will the downtrend accelerate? Or should traders hope for a bullish reversal in GBP/USD charts, trying to buy call options from current deep levels? This article supposed to answer those questions, analysing both fundamental and technical outlook for GBP/USD.

It’s tough to remind about the Brexit every single week but it had just become a cruel reality in the UK since brits made the historical decision to leave the European Union in July 2016. The most frustrating news for investors came in last Monday when British Prime Minister Theresa May decided to cancel the Brexit vote in Parliament after months of tough negotiations with EU and tons of effort to find compromise Brexit deal conditions. Several key ministers left the British government recently, including Brexit Affairs Minister Dominic Raab, expressing their positions that do not accept May’s deal. Politicians reacted with an immediate non-confidence motion which has been withstood by Theresa May, however, her political career is under a huge threat since then.

It’s not about any political personality though, as British investors, businesses and even normal citizens are tired of uncertainty which has been brought with the Brexit decision. The key problem is related to the economic growth in the UK which stuck in the middle of nowhere due to an unclear future. How should we negotiate trade deals with the EU? What about labour force migration and Irish border rules? How can we invest in long-term projects if we don’t even realize what is going to happen next year? All of those issues keep weighing on business activity, investment climate, consumer spending and the gross domestic product, as the result. Latest macroeconomic data confirms uncertain conditions for the Britsh economy with industrial and manufacturing production slowing down, exports revenues falling, inflation stagnating and earnings declining.

The Bank of England made an unexpected step this year, hiking the interest rates one time, as a preventive measure when Monetary Policy Committee noticed some signs of inflationary pressure accelerating, especially in the energy sector. But that was rather an exception than a trend. Interest rates remained at historically low levels since the financial crisis in 2018, even though most of the western developed economies already started the tightening cycle in the light of economic expansion. There’s nothing even close on the table for the Bank of England with all 9 MPC members constantly voting for ‘unchanged’ interest rates. The latest Carney’s press conference confirmed that trend with MPC Governor acting and speaking like a real dove while one of the largest world’s economies struggling to pick up the growth momentum. Nothing positive to expect as long as the Brexit saga continues.

Technically speaking, the Britsh pound had entered the weakest phase since the Brexit crash in 2016. Traders rush to buy put options for all of the Sterling pairs as GBP/USD lost the ground last week after breaking through this year’s lows around 1.2662. Moreover, several long-term horizontal supports have been breached, including 1.2603 from June 2017 and 1.2501 from April 2017. One of the latest defence barriers for the cable bulls is placed near 1.2103, the lowest rate in March 2017, from which GBP/USD started its post-Brexit recovery. If that level was breached by the price clearly, call-option buyers would not have any ground under the feet as Sterling would enter into an unknown historical zone without any clear support and resistance levels. Some traders remember the summer of 2016 when GBP/USD plunged for 250 in ten seconds as the trading software could not find any appropriate rate to close current deals.

We’ve already shown a squeezed long-term daily chart in one of our technical forecasts recently. Below is the H4 detailed chart for GBP/USD. The resistance of the exponential moving average with period 55 bars represents the strong curve level, holding the price from further appreciation. Put-option buyers use that curve for entering the market with heavy trading volume, so binary options traders should not hesitate from joining the party. The speed with which Sterling falls after any failed resistance test suggests that a shorter timeframe could be chosen by aggressive traders who are seeking fast and large profits during active trading hours. The absence of any technical reversal signs leaves an extremely low level of chances for bulls to change anything in the nearest future, so traders shouldn’t even think about buying call options for the British pound, despite its oversold level.

Source: Hacked

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