The British pound dropped against its major trading partners as market investor’s pile onto to short bets as concerns grow over a hard Brexit. The pound fell below the Brexit vote low and the weakest level since 1985 against the US dollar.
Cable weakness accelerated after PM May announced over the weekend that she plans on triggering Article 50 by the end of March 2017. She also plans to repeal the 1972 law European Communities Act that gives direct effect to all EU legislation.
Price action on the GBP/USD daily chart shows the bearish ABCD pattern that formed on September 6th. Point D was targeted with the 161.8% Fibonacci expansion level of the B to C leg. Price accelerated lower after the break of the 50-day SMA. Despite solid economic numbers, traders are selling sterling and dealers are noting the next key level at 1.2500. Major support should come from the psychological 1.20 handle.
If we see a short squeeze and the cable rebounds, we could now see major resistance from the 1.2850 to 1.300 zone. If we see that area taken out, price may not find major resistance until the 1.3100 region.
The trade: Sell GBP/USD at 1.2775 with a stop loss at 1.2825 and a take profit at 1.2575. The Risk/Reward Ratio is 1:4