That was the largest gut-wrenching move I have seen in my 34-year career in Forex. GBP/USD dropped by 12%. I recall researching the largest 1-day moves some years ago and basically the maximum was around 6%. Did Brexit cause that decline? Well, I guess so but I actually forecast this drop back in the second half of 2014. It was always going to happen. What’s more, once the current furore is over – and that won’t be until later next year – both EUR and GBP will recover but GBP will be stronger. On the other hand, the Euro will, in years to come, will make new lows that in GBP will correspond to a correction only.
Here is the chart when I first forecast this decline:
So… what’s in store for today? Good question… Further direct losses in the Europeans or a deeper correction higher before those losses. That’s the puzzle I have. The larger issue is that the swings are developing in such violence that it’s very tough to be certain of both entry and exit points. Most likely the better outlook is working with the downside.
The Aussie saw a very deep pullback. I won’t rule out a marginal new corrective high but it’s touch and go. We’ll have to see this morning’s gap exceeded. Otherwise, it’s basically in the European group.
That USD/JPY collapsed was a source of annoyance. However, interestingly it stalled at a low support area. It has a minor daily bullish divergence – and a longer 4-hour divergence. However, Friday’s drop hardly provides any confidence on the upside. These recent legs lower have been rather aggressive so it’s difficult to suggest any bullish outlook but I’d also need a downside confirmation below Friday’s low… Overall, it should allow EUR/JPY to continue its decline…
Take care while the swings continue…