10-21-219: December British Pound: Confusion Over Brexit but Optimism Lingers On

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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     6

01

4     3

2 : : : : :5

8          9          7


Introduction

"The trend is your friend," is one expression commonly heard in commodities trading. Certainly, here it seems to apply. The Pound has seen a great runnup recently, and the British Government seems mired in indecision and stagnation, both of which could lead to a correction. But the technical picture is very strong right now for the Pound, suggesting that the markets are saying that a Brexit "deal" will be worked out to solve the Northern Ireland border problem and allow Britain to leave the European Common Union without too much destructive penalty. Any settlement, even getting back into the EU on another referendum vote would be positive for the Pound. It was the Brexit issue that caused the Pound to collapse in the first place. But the divisive politics of Britain is just as bad as that in the U.S. Each side refuses to compromise or give in, and the result is stagnation in government action, hurting foreign trade, manufacturing and the economy in general. Thus viewing the news, we would think the Pound should start heading down again, but the markets remain optimistic at least for now, and appear to be saying that the Pound will continue its rise in anticipation of a late October settlement of Brexit issues, a possible "deal" worked out for N. Ireland, and Parilament coming to its senses in realizing how much the indecision is hurting the British economy.


Intermarket Analysis

We fed the British Pound, Euro Currency, and the U.S. Dollar into a neural network to get the following result:




Parabolic Chart

December British Pound:

Parabolic Chart


Nirvana Chart

December British Pound:

Initial Chart


News Analysis

There are indications that Northern Ireland's Democratic Unionist Party, the coalition partners of the Conservative Party, are not going to support the Brexit deal in a vote (upcoming shortly after this writing) in the UK Parliament. That has made the vote too close to call, and this is likely to send the Pound several cents higher if "yes" wins and several cents lower if "no" wins. With 7.00 cents gains over the past 7 sessions, there is likely to be some long liquidation and profit-taking given upcoming expected volatilitiy in the market. The Pound will continue to react to the ebb and flow of Brexit headlines.

The Brexit vote story is unfolding so fast simultaenously with this writing that it is impossible to assess all the ramifications, but the result of the "vote" we have attempted to monitor is indecisive. An ammendment was first voted upon to delay the final vote until the end of October. It is considered a defeat for Prime Minister Boris Johnson, who has vowed to call an election if parilament blocks efforts to leave the EU without a deal on October 31st. Johnson has lost leverage in attemting to conclude Britain's leaving the EU as expeditiously as possible.

A "deal" certainly involves a "hard border" between the Republic of Ireland and Northern Ireland.if Northern Ireland leaves the EU with Britain while Ireland has already decided to stay in the EU. That would involve customs and other border delays and complications in trade between the two parts of Ireland. One "deal" version involves a "borderless" solution, making Nothern Ireland an exception, but that opens the question why not also for Scotland, whose population voted against Brexit.

Anyway, the "deal" is in jeopardy. Uncertainty remains affecting trade, and we would have expected this to reflect in the Pound lower in Forex trading, but it appears in the short run to be heading higher against the Dollar. Apparently market consensus is that the whole indicates increasing support for Britain not leaving the Europen Union at all, even though Prime Minister Johnson has threatened to ignore certain laws and get it done ASAP. The collapse in the Pound came simultaneously with Britain's vote to leave the EU, so the market determines that remaining in the EU is good for the Pound.

Bank of America says, "Buy the Great British Pound (GBP) if parliament rejects Brexit deal. Mizuho, SEB (Skandivaniska Enskkilda Banken), and LMAX all eye more GBP gains. The Pound is the second-most risen foreign currency in 2019 as of this writing. Some urge profit taking after such a rise, eyeing future volatility and uncertainty. Pound movements against the U.S. Dollar (basis for standard commodity contract) are generally now opposite to Euro Currency movements. The GBP was downgraded by Barclays. It sses the Brexit drama dragging on until year end. But it sees the Euro and the U.S. Dollar also dragged lower by problems of their own, such as declining interest rates. The trade war is punishing the U.S. Dollar also. Bank of America sees a "big low" coming for American stocks more serious even than what is happening in Britain affecting the GBP/U.S. Dollar rate.

Toronto Dominion Bank (TD) sees the the GBP sputtering, along with the U.S. Dollar, while the Canadian Dollar and Euro Currency are expected to climb. The U.S. economy is seen as slowing due to Trump's tax cuts plus his trade war with China, leading to further Fed interest rate declines. TD forecasts the GBP/US Dollar at 1.30 at year end and GBP/Euro at 1.0989.

The U.K.'s chaos continues to dominate traditional fundamentals. Any leadership transition in the U.K. would provide only temporary relief, if any.

One headline from MarketWatch suggests the possibility of a "hard exit" from the EU by Britain was decreased by Johnson's working out a "deal" witih the EU but not with Parliament. In the deal, he created a border he did not want in Ireland, under authority of a Court he didn't want to accept, to be submitted to a Parliament he doesn't control. The "deal" is seen as hurting the British economy, although not as bad as a "hard exit," and the Pound is all over the place recently, jumping at the news of possible end of three years of uncertainty, followed by a reversal. All this is happening as this is being written, impossible to determine which way the Pound is heading in the short run.

Britain's GDP is 1 to 3% lower than it would have been if Britain had voted to remain in the EU. Limits on immigration to Britain will also hurt its economy. The U.S. ecoonomy could also be affected by impact on consumer household affecte by "bad stories" regarding the U.K. economy affecting U.S. exports. Capital investment would be redirected by disrupted supply chains. This would continue to be a main concern even if a Brexit deal were concluded, trading switching from "political risk" to "disruption concerns."

It is confusing for the best of minds to figure out where all this is headed, but we're suggesting that the "chaos" in Britain is generally bad for its economy and expected to continue, at least in the short run, and therefore we are bearish on the Pound, at least in terms of recent news, neglecting technical factors (chart patterns) which could push our opinion the other way.


Point & Figure Chart

150.0I                                                                  T 10/18
     I IMM - Dec-19 British Pound, 62.5Kpd, $/pd   Cm.=0.05  Lim.= 3.8
     I
     I
     I
147.5I______________X__________________________________________________________
     I              XOX         X
     I              XOXOX       XO
     I              XOXOXO    X XO
     I              XO OXO    XOXO
145.0I______________X__OXOX___XOXO_____________________________________________
     I              X  O OXOX XOXO
     I              X    OXOXOXO O
     I              X    OXOXOX  O
     I              X    OXO OX  O
142.5I______________X____OX__OX__O_____________________________________________
     I              X    O   OX  O
     I              X        O   O
     I      X       X            O
     I      XO      X            O
140.0I______XO______X____________O_____________________________________________
     I      XO    X X            O
     I      XO    XOX            O
     I      XO    XOX            O
     I      XO    XO             O
137.5I______XOX___X______________OX____________________________________________
     I    X XOXOX X              OXO
     I    XOXOXOXOX              OXO
     I    XOXOXOXOX              O OX X
     I    XOXOXO OX                OXOXO
135.0I__X_XOXO___O_________________OXOXO____X_________________X________________
     I  XOXOX                      O OXOX   XOX           X   XO
     I  XOXOX                        O OXO  XOXO          XOX XOX
     I  XOXOX                          OXO  XOXOX       X XOX XOXOX
     I  XOXO                           O O  XOXOX       XOXOX XOXOXOX
132.5I__XOX______________________________OX_XOXOX_X_____XOXOX_XO_OXOXOX________
     I  XOX                              OXOXO OX XO    XOXOXO   O OXOXO
     I  XOX                              OXOX  OX XO    XOXO       O OXO
     I  XO                               OXO   OXO O    XOX          OXO
     IX X                                OX    OX  O  X XOX          O O
130.0IXOX________________________________O_____OX__O__XOXO_____________O_______
     IXOX                                      O   OX XOX              O      X
     IXO                                           OXOXO               O      X
     IX                                            OXOX                O      X
     IX                                            OXOX                OX     X
127.5IX____________________________________________OXOX________________OXO____X
     IX                                            O O                 OXO    X
     IX                                                                OXO    X
     IX                                                                O O    X
     I                                                                   O  X X
125.0I___________________________________________________________________O__XOX
     I                                                                   O  XOX
     I                                                                   O  XOX
     I                                                                   O  XOX
     I                                                                   OX XOX
122.5I___________________________________________________________________OXOXO_
     I                                                                   OXOX
     I                                                                   OXOX
     I                                                                   O OX
     I                                                                     O
120.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
              111111                          1111111                         1
       345689900011211111222223344666677788999001111211112233333333344556789990
       212200211301002223012220211012201202002010111100110101111122200002020021
      0976745209127725691541676909642753531471881245324565952333415835390323450
The above chart is giving a conventional buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical high and detect no seasonal trend.

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 triggered a buy 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 not advised because of extremely high risk even on most available spreads..


Historic Range

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

Historical Chart


Commitment of Traders

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. Large speculators with the best track record are getting increasingly-long.

Commitment 2

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

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that am uptrend remains intact from the last volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Partly because of the high volatility on the Pound, we could not find any profitable option trades within our usual low-risk parameters. The following trade is a high-risk one.
Our option trade recommendation is to Sell (1) British Pound June 148 Put @ 0.1768 or better.


o 1 o 5


o 3


Calendar Spread

What the Jan. - Jul. 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 0.00 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -1.76 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be midway headed toward the buy the far, sell the near point.





Level Table:

Level Table

The path of least resistance is up.

To view the chart below correctly use Microsoft Internet Explorer.

137.0|                                                                  T 10/18
 IMM - Dec-19 British Pound, 62.5Kpd, $/pd   Cm.=0.05  Lim.= 3.8
     |
     |
     |
135.5|_________________________________________________________________________
     |K
     |JK
     |JKKL
     |JJKKKKLLLL
134.0|BJJKKKLLLLLL_____________________________________________________________
     |BBGGGJKKKKLLLLLLL
     |BBGGGJKKKKKLLLLLLLL
     |ABBBGGGHHJKKKKKKLLLLLLMMM
     |ABBBBBGGHHJKKKKKKLLLMMMO
132.5|AAABBBBBBGGGGHHHJJKKKKKLLMMMMMMNOO_______________________________________
     |AAAABBBBBBGGHHHJJJJJKKKKKLLMMMMMMMMNNNOOO
     |AAAABBBBBBGGHJJJJKKKLMMMMMMMMMNNNOOOO
     |AABBBBGGGHJJKKKLMMMMMMMNNNOOOOO
     |AAABBBBCGGGGHHHHJJKKMMNNOOOOOPP
131.0|AAABBBBCFGGGHHHHJJNNNOOOOPP______________________________________________
     |AAABBBCCCCCFFGGGGGHHJJNNOOP
     |AAAAABCCCCCCCDFFGGGGHHHJJNNOOOPP
     |AAAABCCCCCCCCCCDDFFFGGGHHHJJJNNOPPP
     |AABCCCCCCCDDDDDEFFFJJNPP[[
129.5|AABCCCDDDDDDEFFFFFFFJJPP[[_______________________________________________
     |ADDDDDDEEFFFFFFFFP[[   <<<
     |DDDEEEEEFFFFFFPP[[
     |DDDEEEEEEEEFFFPPZ[[
     |DDDDEEEEEEEEEFFPPPQQSZ[
128.0|DDDDDEEEEEEFFFPPQQQQQRRRRSSZZ[___________________________________________
     |DDDDEFFPPQQQQQQRRRRRRSSSSZZ[
     |DDDDFPPQQQQQQRRRRRSSSSSZZ
     |DDDFPQQQQRRRRSZZ
     |DDFQQRRSZZZ
126.5|FQRRRSSZZ________________________________________________________________
     |RRRSSTTTZZZ
     |RSSTTTTTYZZZ
     |SSTTTTTTTTUUYYZZ
     |TTTTTTUUXYYZZ
125.0|TTTTTUUUUXXXYYYYYZ_______________________________________________________
     |TTUUUXXXYYYYYYZ
     |TUXXXYYYZZ
     |UXXYZZZ
     |UXXXXXXYYZZ
123.5|UXXXXXXXYYZZZ____________________________________________________________
     |UWWXXXXYYYYZZZZ
     |UWWWWWXXYYYZZZZZZ
     |UUUWWWWWXXXYZZZZ
     |UUVWWWWWXXYZZZZ
122.0|UUUUUVVVVVWWWWWWXZZ______________________________________________________
     |UUUUVVVVVVVWWWWWX
     |UUUVVVVVWWWWX
     |VVVVVVWWX
     |VVVVVW
120.5|VW_______________________________________________________________________
     |W
     |W
     |
     |
119.0|-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=-0.488
       1 1 1 1 1                                       1 1           1
       0 1 1 2 2 1 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0           0
       2 0 1 0 1 0 1 3 1 2 1 2 1 2 1 2 1 2 0 2 0 2 0 1 0 1           1
       2 2 6 3 7 2 6 0 3 8 4 8 1 6 0 4 0 4 9 3 6 0 4 8 2 7           8


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 10/18 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                 BPZ9    December British Pound

                      High Price:  1.3591
                   Current Price:  1.297
                       Low Price:  1.2663

                            Risk:  0.047
                     Opportunity:  0.095

                    (O/R) Ratio =  2.023


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart + 1
Nirvana Chart - 1
News - 1
Point & Figure 0
Cyclicals + 1
Seasonals 0
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 + 3
Place 5 December British Pound on a Buy Watch with stoploss @ -2.90 below the get-in point when recent price is represented as "129.70".
____________________________________________________________________________________________________________________________________________C.T.