Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Chart Of The Day: 5 Years Post Brexit Shock, Is Sterling Finally Recovering?

By (Pinchas Cohen/ 24, 2021 09:39
Chart Of The Day: 5 Years Post Brexit Shock, Is Sterling Finally Recovering?
By (Pinchas Cohen/   |  Jun 24, 2021 09:39
Saved. See Saved Items.
This article has already been saved in your Saved Items

Today, June 24, marks five years since the surprise results of the UK's Brexit referendum were released—shocking the world. When the completely unexpected 'Leave' majority was announced, the pound sterling dropped as much as 11%, ultimately settling a record 8% lower, a 31-year low for the Cable. Global markets as well as British betting firms had considered it a foregone conclusion that the 'Remain' camp would win by a landslide.

Now, after years of sometimes bruising divorce negotiations between the EU and the UK, on the fifth anniversary of the vote results, we thought it might be interesting to take a look at how the currency, and the country's economy, have fared in the wake of that unexpected outcome.

The British economy is expected to expand 6.4% this year, the second highest level of growth among the G8 developed nations whose median growth is estimated to be just 5.4%. As well, the iShares Core FTSE 100 UCITS ETF (LON:ISF), the biggest exchange-traded fund that invests in UK assets, is enjoying record demand. Capital inflows have soared 126% since that ill-fated 2016 day, according to Bloomberg data.

It makes sense then that, according to Lloyd's Business Barometer, economic optimism is the highest since 2016, on easing social restrictions.

So, great, right? Sterling must be a sure bet. Not so fast...there's another, darker side to the picture.

Britain is now suffering from deteriorating productivity, shrinking global trade and no antidote for the pound’s gargantuan depreciation which is still 6% lower than its 1.4879 settlement on June 23, 2016, the day the referendum took place. It's the worst performance among 10 major currencies since the vote occurred.

Here's what that looks like on the broader technical chart:

GBP/USD Monthly
GBP/USD Monthly

On the longer-term view, it's clear the 1.4 level has been a solid floor since January 1986. After the pound plunged through it in the aftermath of the referendum, the currency attempted a comeback during January 2018 but was rejected.

In May of this year, sterling attempted its second return, but supply pushed it back down. The obvious, long-term peak-trough downtrend is also apparent.

Here's a closer look:

GBP/USD Weekly
GBP/USD Weekly

This is where it gets complicated. While the price found resistance by the April 2018 high—the previous long-term downtrend peak—the pound also completed a massive H&S bottom before that.

That could mean the decline might have been a return-move following the outsized bullish pattern. And, lo and behold, the pound found support precisely on the neckline, after jumping this week.

In addition, the 50-week MA crossed over the 200-week MA, triggering a rarely seen Weekly Golden Cross. Notice that if the H&S follows through higher, it will complete an even larger double-bottom (blue).

Having said that, and considering that these moving averages have been going sideways for the past five years, we don’t assign too much significance to the “moving” average activity in this time frame. Conversely, both the weekly MACD and RSI are providing bearish signals.

Now, let’s zoom in again, for the final resolution:


See how GBP/USD found support on the (red) neckline of the weekly H&S bottom. The price has been ranging since early February, between 1.42 and 1.36. The currency pair fell below its uptrend line since the infamous March bottom, not a good sign.

However, while that means the price has gone sideways, it doesn’t necessitate a downtrend. A reversal would be signaled if the price falls decisively below the Apr. 12 low.

Alternatively, should the weekly H&S bottom hold, the daily chart might produce an ascending triangle, shown via the thicker trendlines. Notice how the broken uptrend line meets with the top of the triangle, a likely place for resistance.

If the price scales above it, we can see a push higher. Is this the beginning of a long-term reversal? It’s too early to tell.

So, how to proceed? That depends on your risk appetite and style.

Trading Strategies

Conservative traders should wait for all trends to agree. If the price scales above the April 2018, 1.4378 level, it will have completed a long-term uptrend, agreeing with the medium and short term trends.

Moderate traders will wait for the completion of the daily ascending triangle, confirming the massive H&S bottom.

Aggressive traders could enter a long position now, counting on the daily ascending triangle, supported by the weekly H&S bottom. However, given the price has rebounded to the middle of the pattern, they should wait for a dip toward the bottom for a more favorable risk-reward ratio.

Trade Sample

  • Entry: 1.3850
  • Stop-Loss: 1,3800
  • Risk: 50 pips
  • Target: 1.4200
  • Reward: 350 pips
  • Risk:Reward Ratio: 1:7
Chart Of The Day: 5 Years Post Brexit Shock, Is Sterling Finally Recovering?

Related Articles

Shahriar Motevaselolhagh
EUR/USD This Week By Shahriar Motevaselolhagh - May 22, 2022

EURUSD has been bearish for 50 weeks but there are some concerns now. There is a bearish Engulfing pattern in weekly DXY which is below the resistance line so we may see a little...

Chart Of The Day: 5 Years Post Brexit Shock, Is Sterling Finally Recovering?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
Sign up with Email