The Forex Chronicles

Brexit is Still Making the GBP/USD Impossible to Trade in 2019

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Introduction

The official date that Britain leaves the European Union (29 March 2019) is getting ever closer, but there is still just as much uncertainty as ever.

Nobody really knows if we will be leaving the EU on this date without a deal, or if this date will be extended in order for all parties to reach some kind of agreement.

Indeed there is still an outside chance that a second referendum will take place at some point in 2019.

This all means that it is practically impossible to predict where the pound pairs, such as the GBP/USD pair, for example, will be trading in the coming months.

GBP/USD Price Chart

If you take a look at the daily price chart of the GBP/USD pair below, you can see that this is reflected in the price action because the price has been drifting upwards and downwards between about 1.25 and 1.32 for several months now:

ATR of GBPUSD Pair - February 2019

Sometimes it will move a little higher on any news that a deal is looking more likely, and other times it will drift lower when the odds of leaving without a deal have increased.

Regardless, the daily price moves are now relatively mooted because you can see that the average true range has dropped to around 85 points, which also makes it fairly difficult to trade with any real conviction.

Finally, you will also notice that the moving averages that I have plotted on the chart, ie the 20, 50, 100 and 200-day exponential moving averages are all tightly packed together, as they are on the weekly chart, which once again highlights a real period of uncertainty.

Closing Comments

So the point is that you should be very wary of trading the GBP/USD pair right now because of the ongoing uncertainty surrounding Brexit.

I’m sure the price will eventually break strongly upwards or downwards once we have a firm agreement in place between Britain and the EU, but for now nobody really knows what is going to happen in the coming weeks and months, including Theresa May and her fellow MPs.

The GBP/USD could easily rise to at least 1.40 if we can somehow salvage a clean Brexit, but it could just as easily crash to 1.20 or lower if we crash out of Europe without a deal.

However it is too hard to predict right now, and so you would be very foolish to take any long-term positions on this pair, and with the daily price swings being relatively small, it is not exactly a great pair to day trade either.

So in the meantime you are probably better off trading some of the other major currency pairs until a clearer picture emerges.

A Perfect Early Morning Breakout Trade – 27 November 2018

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Introduction

I used to trade early morning breakouts quite a lot in the past, and to be honest, I have forgot just how profitable they can be.

The downside is that you need to be at your computer early in the morning between about 6 AM and 8AM (UK time), which is why I haven’t really had the opportunity to trade these breakouts recently, but if you are available at this time, you can get some strong and predictable price moves.

As you may have discovered yourself, the GBP/USD is a very difficult pair to trade right now because it is so sensitive to any Brexit announcements, and seems to be waiting for any many major developments before moving strongly in either direction.

That’s why short-term day trading may be the best way to trade this pair right now, and early morning breakouts are ideal because an average trade may only last about an hour or two at the most, and they obviously occur early in the day when there is unlikely to be any market-moving news other than the occasional economic data release.

How To Trade These Breakouts

The key to success with this type of strategy is to wait until you have a very small overnight trading range between 12 AM and 6AM on one or more of the major forex pairs, and then trade the subsequent breakout on a short-term chart (I like to use the 5-minute chart).

It is imperative that you have a tight overnight trading range in comparison to the average trading range because then there is the potential for the price to move a lot more when it does break out of this range. Therefore you may not necessarily get a decent set-up every day.

Once the price breaks out, which could be before or after the London market opens, you can enter a long or a short position when the 5-minute candle closes, and either scale out of the trade in stages, moving your stop loss to break-even as soon as possible to effectively ensure a free trade, or set yourself a price target based on the chart.

I have found that pivot points act as excellent price targets because the price will often be driven upwards or downwards to hit these key points on the charts.

GBP/USD Breakout From Earlier Today

To show you how effective this breakout strategy can be, you only need to look at how the GBP/USD traded earlier today.

GBPUSD Early Morning Breakout - 27 November 2018

In this instance the price traded within a really tight trading range of just 15.8 points between 12 AM and 6 AM, compared to the average daily trading range of 101.8 points, and so when the price broke strongly downwards out of this range and closed at around 1.2800 on the 5-minute breakout candle, this would have been a good place to enter a short position.

As you can see, the price went straight down to the S1 pivot point level, which would have been a good place to exit your position or close half and move your stop to break-even, and the price actually continued to fall, falling just short of the S2 level.

All this happened before the London market opened, so the point is that you can find some profitable early morning breakout trades if you are available to trade at this time.

Of course not all of these breakouts will be profitable, but if you wait for the very best set-ups with very narrow overnight trading ranges, you should hopefully have more winning trades than losing ones.

GBP/USD Analysis – The Importance of the EMA (200)

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Introduction to the EMA (200)

The 200-day exponential moving average, or EMA (200) for short, actually has a lot of importance in the world of trading.

When the price breaks upwards through the EMA, it is often a sign of strength, but more significantly, when the EMA (50) crosses upwards through the EMA (200), it is a much stronger signal to go long.

Similarly, when the EMA (50) crosses below the EMA (200), it is referred to as a death cross, and gives a strong signal to go short.

However it is important to note that the EMA (200) is often a key support or resistance level, whereby the price will touch this line, before reversing in the opposite direction.

Many people are sceptical about the importance of such indicators, but you only need to look at the daily chart of the GBP/USD pair to see how the price reacted when it touched the 200-day moving average:

GBPUSD EMA (200) Resistance - October 2018

GBP/USD Sell-Off

The red line indicates the EMA (200) in the chart above, and you can see that the price touched this key indicator on four separate days, and came close to it on one other day as well, but on every occasion the pair was met with a wave of selling that drove the price back below this indicator.

Similarly, this indicator will have acted as a target price to take profits for any people who were long on this pair, so this too would have helped force the price down.

Final Thoughts

The point I want to make is that this 200-day exponential moving average is always worth including on your daily price charts because it is a good place to take profits, and is a good level to watch because it often acts as a key support or resistance level.

Similarly if the price goes straight through it and the EMA (50) later crosses through it as well, it is often seen as a very strong signal that a new trend has emerged. Therefore you should consider looking for opportunities to get in on this trend at a good price when this occurs.

Opening Range Breakout Trade on GBP/USD – 21 September 2018

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Introduction

Opening range breakout trades can be some of the easiest and most profitable trades that you can make if you are a short-term day trader, particularly if you like to trade the main GBP and EUR pairs.

However this is not always the case. It all depends on the overnight trading range because the best set-ups will have a really narrow trading range (the smaller the better) because then there is much more potential for the price to move quite significantly when the markets open at around 8.00 AM local time.

In a perfect scenario, you will have a very small overnight trading range compared to the daily average true range (as indicated by the ATR indicator), and that’s exactly what we saw today with the GBP/USD pair.

GBP/USD Breakout Trade

It is only 9.30 AM in the UK at the time of writing this article, but the price has already moved enough to make a decent profit from this opening range breakout strategy.

GBPUSD Opening Range Breakout - 21 September 2018

In this example the overnight trading range of the GBP/USD pair was just 16.7 points between 00.00 and 7.00 AM, which is a fraction of the average daily trading range of 92.9 points.

Therefore when the price broke downwards out of this range just after 7.00 AM, this was a good opportunity to open a short position and trade the opening range breakout.

The best strategy is often to take a small profit when it presents itself with half your position, such as 10-20 points, for example, move your stop loss to break-even and then let the other half run for as long as possible, and this would have been a profitable strategy today.

As you can see from the chart above, the price has already moved more than 50 points from the closing price of the breakout candle (which is where most breakout traders would enter a position), and we are only a few hours into the trading session.

Closing Comments

The point of this article was simply to demonstrate how profitable it can be to trade opening range breakouts.

It’s not every day that you get the perfect set-up, even if you watch many of the major currency pairs, because the price will often have moved quite a lot already in the overnight session, but if you are patient enough to wait for the ideal set-ups when the overnight range is really small, you can potentially generate some excellent profits.

Brexit Continues To Create Uncertainty For GBP/USD Pair

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Brexit Problems

When the British public voted in favour of leaving the European Union back in June 2016, it caused shockwaves throughout the UK and the rest of Europe.

David Cameron obviously didn’t expect that more than 50% of the British public would vote to leave Europe, and I don’t think many other people did either, but it has happened and has actually resulted in one big mess.

Teresa May’s Conservative government is clinging on to power, with many arguments and disagreements continuing to rumble on within her own party, and now there is a fresh crisis after David Davis, the Brexit secretary who was essentially responsible for delivering Brexit, resigned in protest at her soft Brexit plans.

How Has Brexit Affected the GBP/USD Pair?

When the result of the referendum was announced just over two years ago, the impact that it had on the British pound was clear to see because it basically plummeted against all of the major currencies almost immediately.

Prior to the referendum, the GBP/USD, for example, was trading between 1.4 and 1.5, but following the vote it dropped to 1.3 within days, and continued to fall in the following months, dropping to around the 1.2 level at one point.

Since then, this pair has bounced back quite a lot, and was actually trading between 1.4 and 1.43 earlier this year, but because there is still so much uncertainty surrounding Brexit, it is now trading back in the 1.30s once again.

GBP/USD Price Chart Post-Brexit

The Major Problem

The major problem is that nobody really knows what is going to happen. No-one really knows if we will get a soft Brexit or a hard Brexit, both of which will affect the movement of the GBP/USD pair in different ways.

Indeed there is still a small chance that Brexit won’t actually happen at all because of the ongoing disagreements within the Conservative party.

Furthermore, if there is a snap election and Jeremy Corbyn’s Labour party gets voted in, we could well see a second referendum, and potentially an entirely different result, in which case the GBP/USD would almost certainly rocket higher as a result.

Future Direction of the GBP/USD Pair

As a result of all this uncertainty, the GBP/USD continues to trade in a sideways trading range with no clear direction, and this is likely to continue for the near future until we get a clearer idea of the Brexit exit deal.

So whilst there will always be opportunities to make money from short-term trading, it might be a good idea to remain on the sidelines for the foreseeable future if you are considering taking a long-term position on the GBP/USD pair.

There is always a chance that the price will surge higher or lower whenever there is a major development in the ongoing Brexit saga.

Plus with the government being plunged into crisis after crisis, there is the potential for some big price swings in the coming weeks and months, which could easily result in some big losses if you are caught on the wrong side.