01-26-2019: March British Pound: "Deal or No Deal?"

(Click on links below. Whole page needs to load before links work.)

Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calendar Spread

Level Table
Other Factors
Recommendation

1     01

3     6

4     5


Introduction

2 Markets abhor uncertainties. Many news stories related to the British Pound suggest there may be too much optimism regarding the outcome of Britain's exit from the European Union. In particular, would it be able to work out a "deal" with the European Union, or just exit with "no deal!" The uncertainties associated with "no deal" are anticipated to have a very negative effect on the British economy in a global economy. But if Britain wants to have more control over the rights of citizens, its own financial markets, and the fate of Nothern Ireland, it may have to suffer a no-deal abrupt exit. That would probably send the Pound plummeting, and its likelihood has caused major banks to declare, "Stop trading the Pound!" as it is getting too risky. Optimism has reduced volatility lately as the Pound recovers more significantly than any other widely-traded currency. Whether or not optimism is justified has sparked vocal and influential advocates on both sides of a deal or no-deal.


Intermarket Analysis

We fed Kansas wheat, Chicago wheat, and soybeans into a neural network to get the following result:




Parabolic Chart

March British Pound:

Parabolic Chart


Nirvana Chart

March British Pound:

Initial Chart


News Analysis

The most recent consensus of analysts is that the Pound has become overbought. Traders are speculating on both a possible "good" or "bad" outcome of the exit of Britain for the Euro Zone. British lawmakers face the possibility of having to make a "deal" with the Euro Zone to avoid a bad outcome.

A delay in the scheduled Brexit date is becoming more likely. In an attempt to avoid a "no-deal" exit, the Labor Party was expected to endorse a proposal to postpone the current deadline, which would see Britain leaving the EU on March 29th. Chanellor Joh McDonnell said the proposal was a "sensible" way of preventing worrying about a no-deal exit. The British Parliament has been more or less in a stalemate since a January 15th vote. The idea that British lawmakers are tryign to work out a deal is what most think are curretnly buoying the Pound to two month highs.

The Canadian Imperial Bank of Commerce spokesperson says that news that Labor is going to support a plan to delay the March 29th deadline correlates with the Pound's recent boost.

Several large organizations are moving their headquarters out of London and even the cross-Channel ferries are changing the flag under which they sail to avoid problems with relations between Europe and Britain. London's place as the world's second-largest financial center could be threatened in a less global economy there. Finanacial firms have moved almost 800 billion pounds out of Britain since the 2016 Brexit vote.

There is a possibility that the British Parliament might push for a second Brexit vote referendum to reverse the decision to leave the European Common Union. Prime Minister Theresa May is against that idea. Among other things, Britian wants better control of its borders.

British Pound optimism seems a bit too premature in the world's fourth-most traded currency. The Pound has plummeted between 15 and 20% against the world's other G10 currencies in the wake of the decision to leave the European Common Union vote. British expatriots living on pensions abroad have fared badly in the exchange rate situation.

Deutsche Bank and Goldman Sachs are both saying that the Pound may have already hit rock bottom and that in 2019, it may be one of the world's best-performing currencies. Creduti Suisse put out a $1.40 target for the Pound recently. In their view, external rather than domestic drivers have supported the UK economy since the Brexit outcome, with global and in particular European growth surprising to the upside.

A number of players short the Pound have begun unwinding their positions. UK jobs data has also helped push the Pound to recent highs.

UBS Wealth Management says if investors could stomach a possible 10% pullback, they should consider buying the British Pound.

As far as equity markets affecting exchange rates go, economists in general see only a 15% for a recession in 2019. Markets are expected to stay strong.

The President of Lithuania suggested that a "no deal Brexit" may be better than more talks.

Austria said that a three-month Brexit extension is possible, a factor buying the Pound.

In November, the Pound slid as the Bank of England announced it was raising interest rates for the first time in a decade. Generally higher interest rates encourage foreign investors to put their money into UK banks where it will earn more money. However, the interest rate rise had already been "banked in" to trading levels as it was widely anticipated, in a case of buy the rumor, sell the fact. The Bank of England's decision is widely regarded as not to be the beginning of a rate hiking cycle. The hike was to 0.5%. While uncertainty prevails, rates are expected to stay low.

One Pound could be worth One Euro in the event of a "no-deal" exit.

Citigroup advises to stop trading the Pound before March 29th as a no-deal exit would cause harm to the British economy. The chances of a deal being approved by Parliament is seens as "extremely unlikely." The possibility of extreme volatility makes trading in this currency too risky Citigroup says. A major crash was already seen immediately subsequent to the Brexit vote.

The Pound recently gained the most among G10 currencies because of optimism relating to a Brexit "deal." Banks' internal flows indicated pound positions have become more neutral in recent days compared with big bearish bets in December. Currently volatility levels are about half of what they were ini November. Peers, the U.S. Dollar and Euro have been dogged recently on fears of a global economic slowdown. In the Pound recently, broader sentiment has seemed to outweigh Brexit uncertainties.

With all the talk about a "deal", what are the elements that would add to the uncertainties of this agreement? There are three main issues. One involves citizens' rights, involving allowing 4 milliion recent inhabitants of the UK to maintain their current activities in the place in which they have made their home. Currently, EU nationals have the right to live, work, and study in Britain without interference. Another problem is that Britain made spending commitments while in the EU and might owe a huge amount of money (39 billion Pounds) to the Union. A third element is the Irish border where Ireland would stay in the EU but Northern Ireland would back out affecting border issues there. The UK might be "shackled" to EU rules by Ireland. Separating Britain and the EU would also affect financial services markets greatly, and foreign and security policy would change.


Point & Figure Chart

148.0|                                                                  R  1/23
     | IMM - Mar-19 British Pound, 62.5Kpd, $/pd   Cm.=0.05  Lim.= 3.8
     |
     |
     |
145.5|________________________________________X_______X________________________
     |                                        XOX     XO
     |                                        XOXO    XO
     |                                        XOXO  X XO
     |                                        XOXOX XOXO
143.0|________________________________________XO_OXOXOXO_______________________
     |                                        X  OXOXOXO
     |                                        X  OXOXO O
     |                                        X  OXOX  O
     |                                        X  OXOX  O
140.5|________________________________________X__O_OX__O_______________________
     |                                        X    O   O
     |                                        X        O
     |                                X       X        O
     |X                               XO      X        O
138.0|XO__X___________________________XO______X________O_______________________
     |XOX XO                          XO    X X        O
     |XOXOXO                          XO    XOX        O
     |XOXOXO                          XO    XOX        O
     |XOXOXO                          XO    XO         OX
135.5|XO_OXO________________________X_XOX_X_X__________OXO_____________________
     |X  OXO                        XOXOXOXOX          OXO
     |X  OXO                        XOXOXOXOX          OXOX
     |X  OXO                        XOXOXO OX          O OXO
     |X  O O                    X   XOXO   O             OXO    X
133.0|X____O____________________XOX_XOX__________________OXOX___XOX____________
     |X    O                    XOXOXOX                  O OXO  XOXO
     |X    O                    XOXOXOX                    OXO  XOXOX
     |     O                    XOXO OX                    O O  XOXOXO
     |     O      X             XOX  O                       OX XOXOXOX
130.5|_____O______XO____________XOX__________________________OXOXO_OXOXO____X__
     |          X XO    X X     XOX                          OXOX  OXOXO    X
     |     OX   XOXO    XOXO    XO                           OXO   OXO O    X
     |     OXO  XOXO    XOXOX X X                            OX    OX  O  X X
     |     OXO  XOXO    XOXOXOXOX                            OX    OX  O  XOX
128.0|_____OXO__XOXO____XO_OXOXOX____________________________O_____O___OX_XOX__
     |     OXO  XOXOX   X  O OXO                                       OXOXO
     |     OXO  XO OXO  X    OX                                        OXOX
     |     OXOX X  OXO  X    OX                                        OXOX
     |     OXOXOX  O OX X    OX                                        OXOX
125.5|_____OXOXOX____OX_X____OX________________________________________O_O_____
     |     OXO O     OX X    O
     |     O         O  X
     |                  X
     |                 O
123.0|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
            11111111                    1111111                   1111111
      77788900001112111111222233456778990011122112223344667778899900111121111
      01201101120120001113000212122110021200112230121211010120201201001110011
      65948370252418592770139769767244152012729515403908646363140198194582457
Our computer tells us a non-conventional reactive approach works best for British Pound on p&f charts. Therefore the above chart is taken as giving a sell signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical high and a weak seasonal up period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Pattern." It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for British Pound (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has just triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $625. Initial margin on a single contract is $2,640. Use of options is advised.


Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart


Commitment of Traders

Our bumpkin ignoramus President has really managed to screw things up, including the Commitment of Traders Report by shutting down the Commodity Futures Trading Commission.
Vote for Elizabeth Warren! Hopefully neither Harris nor Biden will get the Democratic nomination although CNN is pushing them; or else we will likely have moren trouble with presidents unable to perform the job. Whatever we get can't be as bad as this one.

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Commercials with the best track record are remaining short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The overall volatility shown below suggests that a change in downtrend remains intact from the last volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) British Pound June 124 Call and Sell (2) British Pound 132 Calls @ 2.40 to the buy side or less.


o 1 o 2 o 5


o 3


o 4


Calendar Spread

What the Mar. - Dec. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at -0.60 or narrower bjying the far as prices are rising and then selling the near, and exiting or entering when it is at -2.30 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be headed toward the sell the far, buy the near point.





Level Table:

Level Table

The path of least resistance is down.
149.0|                                                                  T  1/23
 IMM - Mar-19 British Pound, 62.5Kpd, $/pd   Cm.=0.05  Lim.= 3.8
     |
     |
     |
146.5|_________________________________________________________________________
     |
     |F
     |AAAFF
     |AAAAFFF
144.0|AAAADEEFFFF______________________________________________________________
     |AAAAAABDEEEEFFFFF
     |AAABBDDEEEFF
     |AAABBBBCDDDEEEEEEFF
     |AAABBBBBCCCDDDEEEEFG
141.5|AABBBBBBCCCDDDDDEGGGG____________________________________________________
     |AABBBBBCCCCCDDDGGGGG
     |BBBBCCCCCDDG
     |BCCCCDG
     |CGG
139.0|GG_______________________________________________________________________
     |G
     |GG
     |GGHHHHH
     |GGHHHHHHHH
136.5|GHHHHHH__________________________________________________________________
     |JJK
     |JJJKKKKKK
     |JJJJKKKKKK
     |JJJJJJKKKM
134.0|JJJKKKLLLMMM_____________________________________________________________
     |JKKLLLLLMMMMMMMR
     |LLLLLLMMMMMMMNRRTT
     |LLLLMMMNNNNNRRRRRSTTT
     |LLMNNNNNNNNOORRRRRRRSSSTTTTU
131.5|NNNOQQRRRRRSSSSSSTTTTUV__________________________________________________
     |NNOQQQQQRSSSSSSTTTUVVV
     |OOQQQQQQQSSSTTUUUVVVV[   <<<
     |OPPPQQQQQQSSSTTUUVVVV[
     |OOPPPPPPQQQTUUVVVVWZZ[[
129.0|OOOPPPQQUUVVVVVVWZZZZZ[__________________________________________________
     |OOOPUUUUUUVVVVWWWWWZZZZZZ[
     |OPPPUUVVVWWWWWWWWWXYZZ
     |PUUWWWWWXXYYYZZZZZ
     |WWXXXYYYYYYYZZZ
126.5|XXXXXXXXXYYYYYYY_________________________________________________________
     |XXXXXYY
     |XXXXY
     |XXY
     |
124.0|_________________________________________________________________________
     |
     |
     |
     |
121.5|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.786
                                           1 1 1 1 1 1                
       1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 8 9 9 0 0 1 1 2 2 1 1           1
       2 0 2 0 2 0 2 0 2 0 1 0 1 0 1 2 1 2 1 2 0 2 0 2 0 2           2
       6 8 3 9 3 9 3 7 1 5 9 3 8 1 5 9 3 7 1 5 8 3 7 1 8 2           3


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 1/24 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                 BPH9    March British Pound

                      High Price:  133.21
                   Current Price:  131.01
                       Low Price:  126.58

                            Risk: -0.034
                     Opportunity: -0.068

                    (O/R) Ratio =  2.014


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart + 1
Nirvana Chart + 1
News - 1
Point & Figure - 1
Cyclicals - 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders + 1
Range/Volatility - 1
Level Table - 1
Other Factors + 1
Total - 2
Place 5 March British Pound on a Sell Watch with stoploss @ +2.90 above the get-in point when recent price is represented as "130.92".
____________________________________________________________________________________________________________________________________________C.T.