It’s been a rough start to the week for the pound, with the in/out EU referendum being officially confirmed for 23 June and a number of key Conservative politicians throwing their support behind the “leave” campaign.
The most recent of these was London Mayor and possible future leader of the Conservative party, Boris Johnson, the announcement of which sent the pound tumbling once again.
The pound fell to the lowest level since November 2013 against the yen at the start of the week and further losses could follow in the coming weeks.
I’ve highlighted previously that, with the conservative price projection from the head and shoulders neckline break having been reached, the more aggressive projection – around 153 – will now be eyed. With the pair now heading south again, this is looking increasingly likely.
As also mentioned though (OANDA MP – Sterling Pounded on Weak CPI (Video)), the pair faces a key test first around 156.20. Not only is this a prior level of support and resistance – May 2013 and between September and November of the same year – it’s also the 50% retracement of the move from September 2011 lows to June 2015 highs.
As we approach this level, it will be interesting to see whether bullish divergences appear, with the stochastic and MACD displaying higher lows and price action making lower lows. This could provide an early signal that the pair may run into support here.
Of course, as always this is a secondary indicator to price action so I would also like to see a reversal pattern occur before I become less bearish. The bullish divergence simply warns of its possible occurance.