Updated: Apr 15, 2019
Time flies when you’re having fun. It’s hard to believe it’s been almost three years since Brexit first broke.
I initially looked at EURGBP as an interesting trade opportunity. With the EURGBP at .7622, it looked like there was a good chance it would end up at .86 or so. This was our daily chart from June 22, 2016 [see: The Eve of Destruction.]
It reached our initial targets of .8262 and .8411 by June 30, and reached .8599 on July 6 — a nice 13% return in two weeks. It might have stopped there, as it represented the .886 Fib retracement as well as the channel midline.
As we had discussed in The Eve of Destruction, sharp rallies and pushes above resistance were bearish for stocks. So, I expected heroic central bankers to swoop in and save the world at that point. To be sure, it needed saving. Futures crashed 6.5% overnight. Additional carnage-depicting charts are available at It’s a Brexit! posted live that evening.
In any case, TPTB didn’t save the world by putting a lid on EURGBP — which popped above the former highs. Instead, USDJPY made a heroic reversal and VIX collapsed to some of the lowest levels seen in over a decade… …all because EURGBP couldn’t be contained. It’s important to note that even though SPX didn’t completely collapse, it tested important lows and took almost a year to regain its 2015 highs (the shaded area below.)There were other things going on. But, GBP’s weakness was certainly a drag on stocks as had been the pattern in previous years.
As it turned out, EURGBP’s ascent wasn’t without a target in mind. It had passed up the purple .886 to focus on a different one. On Oct 7, 2016, it came within .0039 of its white .886 Fib based on its all-time high and its post-GFC lows.Since then, it has been consolidating. The highs have been very well aligned — preserving the narrative of a downward trend. Does this mean we can count on the GBP to steadily increase in value? Maybe. The more interesting angle is what it means for the EURUSD.
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