Technical Analysis of Sterling!
The question to be asked now is whether the impact of Brexit can be contained on the sterling in an atmosphere of sheer uncertainty? The only logic that can possibly save the Sterling from utter collapse is vested in the idea that Brexit may have already been priced into the price action. The reasoning detracting us from this notion is that the price movement was violent at the onset of the referendum decision which meant that the markets had not truly grasped the enormity of the psychological outcome of Brexit and thus the reaction was an unexpected one with the Sterling drastically losing ground against the US$ and the Euro. The only thing that can save the Sterling from a collapse is that the markets have followed the technical analysis script and the price action has been predictable albeit being violent.
The Stering has been exhibiting a depreciating trend both against the Euro and the greenback ever since late 2015. This correlates to a point in time when both currencies starting an appreciation trend. The Euro was on a path of recovery, given ECB’s QE programs slowly starting to put the economy back on track, and the US$ was already benefitting from its long term strengthening trend and acting as a safe haven currency for most of 2015. This phenomenon was being slowly manifested in a five wave primary Elliott wave pattern as in the case of US$/Pound Sterling parity and a complete 5 and 3 wave pattern as in the case of Euro/Sterling. The sudden decline in the value of the Sterling has led to the formation of a possible a gapping price action which could now act as a support for price to bounce off of. However, this could also entail in the formation of an abandoned baby top candle. If this is to quantify as a possibility, then the today’s market reaction should either operate in a tight band or should retrace back sharply in the next couple of sessions which could mean that thet Sterling would try to make a recovery against both these counterpart currencies. Correcting against the US$ having reached the ultimate price target culminating in a 5th wave formation and against the Euro completing its final corrective path with a flat running its last course, which is a cycle of depreciation against the Sterling. If the above fails to be the case, then both Euro and US$ should start breaking free, and commence next secular trend of appreciation. Best option would be to wait and see for market to show clarity!