08-13-2018: September British Pound: Two Years After Vote Brexit Still Crushes Pound

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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

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Introduction

Two years after the first Brexit vote referendum outcome, the British Pound is still getting crushed by the decision. Now some are talking about another referendum on the same issue in which polls say the British public would reverse the decision to leave the European Common Union. Political and other factors such as EU regulations themselves (Article 50) make a second referendum unlikely, but still a possibility due to the extreme effect of the first one.

Meanwhile, pessimism spreads with investors in the Pound even as British GDP numbers improve slightly. Economic data does not seem sufficient to offset the portending disaster of poor trade relations with other European nations. There appear to be no separate "deals" being worked out. No deal is worse than a bad deal because it introduces market uncertainties, and markets abhor uncertainty. Central banks unloading pounds would be unlikely to reverse course any time soon.

Our "take", especially with currencies, is "that a move in commodities once underway, usually travels much further than most think it will."


Intermarket Analysis

We fed the British Pound, Euro Currency, and Swiss Franc into a neural network to get the following result:




Parabolic Chart

September British Pound:

Parabolic Chart


Nirvana Chart

September British Pound:

Initial Chart


News Analysis

Traders see the Pound as vulnerable because of the exit from the European Common Union situation. Gross Domestic Product growth in the United Kingdom is not sufficient to overcome fears related to the Brexit situation. Also, global safe-haven interest is flowing toward the U.S. Dollar, and that along with Fed predictions of two more rate hikes this year has weakened the Pound exchange rate versus the Dollar further. Traders await data on the U.S. Consumer Price Index for further direction.

The Bank of England raised its benchmark rate to the highest level in almost a decade. The pace of expansion in the U.K. economy doubled ion the second quarter from the first. Yet the pound is at its weakest in about a year against the Dollar and Euro. Investors mistrust the economic outlook. Annual 1.3% GDP expansion is below the 1.9% average for a decade. Bank of England Governor Mark Carney said in an interview, the risks of a no-deal Brexit are "uncomfortably high." Talks with the EU have reached an impasse according to Prime Minister May. A "no deal" is considered worse than a bad deal because it causes maximum uncertainty about the U.K.'s future trading relationship with the bloc. At its current value, the Pound is less than 10% away from its post-Brexit referendum low reached oin July 10, 2016. Brexiters see the Woirld Trade Organization as their best hope for a clean break from the European Union. The immediate impact of trading on WTO terms would be that instead of current zero percent tariffs, the EU would apply the same tariffs to U.K. goods that it applies to imports from other non-EU countries. These would be around 2 to 3%. But its the non-tariff barriers to trade that present the biggest challenge. Arbitrary health and safety inspections at borders and technical barriers would emerge. Currently there is a high level of integration in the U.K. - EU supply chain that faces increases in costs of moving goods across borders. Bigger inventories of perishable products would be required to minimize delays that might be caused by border friction.

Hong Kong and Shanghai HSBC Bank, one of the largest in Britain, warns that investors might be leaving and not comiong back. It said weakness in the British currency might be irreversible. Longer-term holders of British currency such as central banks and large sovereign funds may be reducing their Sterling reserves on a semi-permanent basis, as they did with the Euro during the Eurozone debt crisis.

Trader exodus from the Pound began in earnest about a week ago when UK trade minister Liam Fox said there was up to a 60% chance that Britain would leave the EU next March wtthout any new trade deals in place. Investor anxiety builds as the clock ticks down toward a series of EU-Britain meetings starting in September with no agreement in sight.

A lot of companies can't wait for Brexit negotiations outcome in October and are trying to hedge against a drop in the Pound. Some are thinking that a recent BOE rate increase was made simply to give room for rate cuts relief in the event of a "no deal."

The U.S. hasn't intervened in markets toi sell Dollars since 2000 when it united with fellow members of the Group of Seven in an effort to boost the sliding Euro. However, the Trump Administration is seen as intervening in markets to sell Dollars to weaken the Dollar. This would help exports in a trade war.

There is always the chance for a second UK vote on a second referendum, this time to remain in the EU. Polling suggests British public would change their vote from the previous result. Part of this is due to younger voters entering the electorate with older members dying out.

Could the U.K. really hold another Brexit referendum vote? Most politicians including Theresa May oppose it. A seond vote could produce chaos that would almost certainly lead to another general election and the fall of the May Government. The exiting process depended upon the E.U.'s "Article 50" invocation, something never before done by any other country, and it is unclear if the process could be stopped or reversed. One million students in Britain have called for another Brexit vote.


Point & Figure Chart

147.0|                                                                  R  8/10
     | IMM - Sep-18 British Pound, 62.5Kpd, $/pd   Cm.=0.05  Lim.= 3.8
     |
     |
     |
144.5|_________________________________________________________________________
     |                                          X         X
     |                                          XOX       XO
     |                                          XOXO    X XO
     |                                          XOXO    XOXO
142.0|__________________________________________XOXOX___XOXO___________________
     |                                          XO OXOX XOXO
     |                                          X  OXOXOXO O
     |                                          X  OXOXOX  O
     |                                          X  OXO OX  O
139.5|__________________________________________X__OX__OX__O___________________
     |                                          X  O   OX  O
     |                                          X      O   O
     |                                  X       X          O
     |X                                 XO      X          O
137.0|XO______X_________________________XO______X__________O___________________
     |XO  X   XO                        XO    X X          O
     |XO  XO  XO                        XO    XOX          O
     |XOX XOX XO                        XO    XOX          O
     |XOXOXOXOXO                        XO    XO           O
134.5|XOXOXOXOXO________________________XOX___X____________OX__________________
     |XO O OXO O                      X XOXOX X            OXO
     |X    OX  O                      XOXOXOXOX            OXOX
     |X    OX  O                      XOXOXOXOX            O OXO
     |X    OX  O                      XOXO O O               OXO
132.0|X____O___O__________________X_X_XOX____________________OXO_______________
     |X        O                  XOXOXOX                    OXOX
     |X        O                  XOXOXOX                    O OXO
     |         O                  XOXO OX                      OXO
     |         O      X           XOX  O                       O O
129.5|_________O______XO__________XOX____________________________O_____________
     |         O    X XO      X   XOX                            O
     |         OX   XOXO    X XO  XO                             O
     |         OXO  XOXO    XOXOX X                              O
     |         OXO  XOXO    XOXOXOX                              O
127.0|_________OXO__XOXO____XO_OXOX____________________________________________
     |         OXO  XOXOX   X  OXO
     |         OXO  XO OXO  X  OX
     |         OXOX X  OXO  X  OX
     |         OXOXOX  O OX X  OX
124.5|_________OXOXOX____OX_X__OX______________________________________________
     |         OXO O     OX X  O
     |         O         OX X
     |                   O  X
     |                     OX
122.0|_____________________O___________________________________________________
     |
     |
     |
     |
119.5|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
                11111111                  111111
      777778889900001112111111223345677899000112111222223344667778
      012220120101120120001113001212211002123020023012220211010120
      651694791370252428592771136986714452201227291541676919655353
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 buy 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 triggered a 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 $1,937. 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

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-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 average volatility shown below suggests that a change in major trend to up is imminent near a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) British Pound December 130 Call and Sell (1) British Pound December 128 Call @ 0.0100 (100 without decimal) to the sell side or greater.


o 1 o 2 o 5


Calendar Spread

What the Sep. - Mar. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. This disagrees with our ultimate conclusion. The best time to enter or leave the above spread is when it is at -0.80 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -1.50 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be approaching the sell the far, buy the near point.





Level Table:

Level Table

The path of least resistance is down.
146.0|                                                                  T  8/10
 IMM - Sep-18 British Pound, 62.5Kpd, $/pd   Cm.=0.05  Lim.= 3.8
     |
     |
     |MS
143.5|MMMMNRRSS________________________________________________________________
     |MMMMMNQQRRRS
     |MMMMMMNQQQQRRSS
     |MMMMNNOQQQQQRRRS
     |MMMNNNOOQQQQQQRRRRS
141.0|MMMNNNNOOOQQQQQRRRRS_____________________________________________________
     |MMNNNNNNOOOOOOPPPPQRRSS
     |LLMMNNNNNNOOOOPPPPQSSSS
     |LLMNNNNNNNOOOPPPPPPPSS
     |LLNNNOPPPPS
138.5|LNOOOPS__________________________________________________________________
     |CLOSST
     |CCCLT
     |CCCCCCDKKLTT
     |CCCCCDHHHKKLLLLLLLTTTT
136.0|CCCDDDHHHJJKKLLLTTTTTTTTTU_______________________________________________
     |CCDDDHHHJJJJJJJKKTTTTTUUUU
     |CDDDHHHJJJJJJJJKKKKKKKTUUUUU
     |CCDEHHHJJJJJJKKUUUVVVVW
     |CCCDDDEEEEFFFFHHHUUUVVVVVVW
133.5|BCCCCDEEEEEFFFFFFGGHHHHUUUVVVVWWX________________________________________
     |BCDEEEEEEEFFFFFFGGGGGUVVVWWWX
     |BBDDEEFFFFFFGGGGGGGGUWWWWWWWXXXXXYY
     |BBDFFFGGGWWWWXXXXXXXXYYY
     |ABWWXXXXYYYZZ
131.0|ABBBBXXXYYYYYYZZZZZZ_____________________________________________________
     |AAAAAABBXYYYZ
     |AAABBYYYZZ
     |AABYZZ
     |ZZZ
128.5|Z[_______________________________________________________________________
     |[[
     |[
     |[   <<<
     |
126.0|-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=-0.029
               1 1 1 1 1 1                                            
       8 8 9 9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 5 5 5 6 6 7 7 8           8
       1 2 1 2 0 2 0 2 0 1 0 1 0 1 0 1 0 1 0 1 3 1 2 1 2 0           1
       4 5 1 5 9 3 6 0 5 9 4 9 2 6 5 9 3 7 1 5 0 3 7 2 6 9           0


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 8/10 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                 BPU8    September British Pound

                      High Price:  1.2943
                   Current Price:  1.2779
                       Low Price:  1.2449

                            Risk: -0.026
                     Opportunity: -0.052

                    (O/R) Ratio =  2.012


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 7 September British Pound on a Sell Watch with stoploss @ +3.55 above the get-in point when recent price is represented as "127.79".
____________________________________________________________________________________________________________________________________________C.T.