Cable: Where Are We Headed After This Political Meltdown? – Seeking Alpha

What a disaster for Mrs. May. From a majority to a hung parliament. The pound reacted dreadfully on the exit poll, leading to a loss of approximately 200 ticks finding an initial base at 1.2700.

This analysis is for slightly longer term positioning and as of next week I will resume uploading intraweek trades that I shall be taking, well in advance of entry.

So, we are currently quite muted going into the weekend. I do not expect anything hugely drastic since May has said that she is not going to resign and is likely to form a minority government with the DUP.

You can see from the chart above that the support created from spiral has been breached. Instantly when I saw the drop after the exit poll last night it was a classic 'break of the ice' - a low volume fall through support or resistance in a topping or bottoming pattern. Price faces some resistance early morning (red line) and I was building a short position in my head from then.

Don't get me wrong - longer term, I am bullish cable. I think that in 12-18 months we will regain 1.40 (I have the same opinion on EURUSD if you note my previous article) but I believe that these markets really do enjoy shaking out positions. This is why I have notes the downside zones and the key price level for me is 1.2350/40. This is where I am looking to target. Why? Well my old friend COT positioning on sterling comes to mind.

We can see from the COT data that sterling non commercial positioning long has increased drastically over the last month or so. This uncertainty from political weakness gives a certain viability to traders wanting to hold sterling longs, and it's likely that CHFGBP and JPYGBP will see flows into them short term. This would indicate a fall in price and a cascade of stops pretty quickly. Interestingly, looking at CME options, 1.23 has the highest volume currently. I'm going to be honest and say that I am not an options guy so I don't know the ins and outs, but it seems pertinent so it's something that I'd mention (and if someone wants to give me any lessons on options trading I would be most open to it!).

The upside risk is of course still there. If we have a break above 1.3025 then I'll scratch the trade (where my stop will be) because that we will likely form key support at the high of the late April - current range (similar to how we are forming resistance at the low of the range currently).

So the trade -

Short at market sub 1.2850 (next week)

Stop at 1.3025

Target of 1.24/2350 (the latter if you feel it will extend fully through demand)

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in GBPUSD over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Cable: Where Are We Headed After This Political Meltdown? - Seeking Alpha