In the lead-up to next month’s Brexit referendum, the Cable is sure to be a major focus for speculators. The pair has oscillated between the 1.4683 and 1.3838 price levels and could be ready to test resistance once again. However, this may not be the end of the story as this peak could be a point C in a Bullish Bat pattern. If the Cable fails to break resistance, the pair’s plummet to support could be exacerbated by mounting uncertainty generated by the June referendum.
Firstly, it is worth noting that the potential Bullish Bat pattern is still nascent and will require more confirmation. Specifically, only two legs have completed and the Cable should retrace to around the 1.4718 level to confirm the Bat pattern’s presence. However, the case to expect the required upwards momentum is fairly strong.
Looking at daily stochastics, it is obvious that the pair is quite oversold which will be limiting short-term downside potential. Moreover, a recent crossover of the 12 and 20 period EMAs on the daily and H4 chart could be signalling that an uptrend has formed. Additionally, even if upside potential is relatively limited, the cable actually need only rally to 1.4499 to make a viable Bullish Bat pattern.
Consequently, the zone of resistance at 1.4499 will be important in the coming days as if it is broken it could mean that the Cable is set to move significantly higher. Importantly, the 100 day EMA could be providing some significant downward pressure which may make the 1.4499 price level a more reasonable point C to expect. However, wherever the pair finally finds point C forming, the fall to point D is where speculators will be looking to make some pips.
On the fundamental front, the impending UK Employment and Retail Sales data will be worth keeping an eye on as they could signal if the Cable is going to reverse at the 1.4499 level. Particularly strong figures could easily send the pound into a rally to test higher zones of resistance. Likewise, weaker outcomes could help to set the pair tumbling at the lower potential inflection point.
Ultimately, this pattern needs a few more days to confirm its presence but the evidence is promising. If the Bat pattern does complete, the downside potential will be significant but it is worth remembering that the pair should correct itself around point D. What’s more, keep a watch on UK fundamental news as it will be vital in signalling when the Cable is ready to have another reversal.
