An interesting week ahead for the British pound

GBP/USD - daily chart

GBP/USD – daily chart

It was an interesting week for the British pound and in particular against the US dollar, with the pair selling off sharply on Friday and closing with a wide spread down candle on the daily chart. The move lower was in stark contrast to the recent trend for Cable which had been firmly bullish rising in tandem with the EUR/USD as US dollar weakness prevailed on the dollar index. The move on Friday came as no surprise to those traders using a currency strength indicator, with the British pound moving to a deeply overbought region on the indicator, and counterbalanced with the US dollar being equally oversold in the slower timeframes. With Thursday’s election now on the horizon, and with a slew of opinion polls due for release in the next few days, these are continually signalling a close result with no party likely to have an overall majority in Parliament. As a result we can expect to see further weakness in the British pound against both the US dollar and cross currency pairs, with a similar follow through as for five years ago, which saw the GBP/USD shed over 600 points in May before recovering over the following two months.

Whilst the politics is certainly driving the pair at present, the technical picture was also signalling weakness ahead, not least with the depth of resistance overhead in the 1.5550 and as shown on the NinjaTrader accumulation and distribution indicator, a level which was ultimately not achieved, and duly confirmed with a pivot high following Thursday’s price action under high volume and further confirming a potential reversal. However, what is interesting here is the volume associated with Friday’s price action, and indeed in much the same way as with the Aussie dollar where we saw a big move on average volume, here again we witnessed a dramatic move but associated with modest volume. This in turn suggests a degree of spoofing once again by the insiders, and it would be no surprise to see this market bounce higher again over the next few days with further volatilty ahead of the election.

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