After the UK’s surprise vote in a referendum to leave the European Union, the fall out is significant. GBP fell 15 big figures (FIFTEEN!) against the USD in 5 hours, share markets were smashed and gold rallied $100 an ounce. And they’re just the first blush reactions.
Surprisingly, the EUR has held up quite well. Many commentators have argued that Europe needs Britain just as much as Britain needs Europe. In fact, if a Brexit occurs, it may imperil the whole Union. Yet EUR is down less than 5% against the USD, compared to GBP’s 10% plus fall. That’s why traders are examining the EUR/GBP chart:
First let’s acknowledge the extraordinary conditions. In 33 years of trading, I’ve only experienced a handful of days like this. Look at that daily candle, and the spike in volatility identified by the leap in the Average True Range at the bottom of the chart.
Fundamentally I suspect the EUR needs to play catch up on the belting of GBP. A fall back through 0.8100 is my signal to sell. Not only is this a breach of previous resistance/support (green line), it would satisfy a head and shoulders like pattern on the 5 minute chart, not shown.
A stop entry sell order, with very broad boundaries to ensure execution in a fast moving market, is my preferred method. A stop loss at 0.8182 is further away than normal, reflecting highly volatile conditions, and offering a chance to profit from a target at 0.7700.
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