The GBP Situation…

So sterling has taken a battering after the referendum. We had a fall of 14% to the current yearly low at under $1.28. See chart below.

However, I feel that we have made a temporary bottom. Note the inverted head and shoulders with the low into low volume. I feel that we have a lot of potential to get back up to equilibrium at $1.42.

We have weak shorts after Brexit. I feel that these need to be taken out if we were to get a further move down, as there is no volume down at these levels.

On the monthly chart above, we do have a big head and shoulders pattern, which can leave the downside heavily exposed if it plays out. Fundamentally, however, the UK has the highest 5yr inflation swap price (compared to the US, Eurozone, Ems). This, surprisingly, could indicate hawkishness and the possibility that the base rate could actually be increased. This does go against a lot of market opinion, especially in the current uncertainty and potential for recession… but the market pricing does not lie.