Deal, No Deal, or More Talks: Key Pound Levels for Each Scenario

(Bloomberg) -- The pound’s been swinging between gains and losses ahead of a critical decision by U.K. Prime Minister Boris Johnson on whether the nation will abandon talks with the European Union.

So much so, its volatility over the past week was higher the Turkish lira’s, one of the most unpredictable currencies in the developing world.

Here are the key levels to watch as Brexit negotiators turn up the heat.

Brexit Resolution

• Longs may look to cut part of their exposure around the 55-DMA, which comes at 1.3024
• Cycle highs at 1.3072-1.3083 may also serve as a strong resistance, while the key level to watch on the topside is some way off: the 61.8% Fibonacci retracement level of cable’s losses since Sept. 1 high of 1.3482 comes at 1.3174, around 2% higher than current levels

Talks Breakdown

• The first big level to watch to the downside in cable comes Friday at 1.2787, the trendline support of a channel that started around mid-May
• Support also comes at 1.2710, the 200-DMA, which has served as a trend-setter since May 2019
• A close below 1.2676, the Sept. 23 low, would signal the pound is set for deeper losses. That’s because it would breach the 38.2% Fibonacci retracement level of its gains since March at 1.2691

More Talks

• If the can is kicked down the road, sideways trading may become the name of the game, at least with Brexit as the main market narrative
• On the four-hour chart, the knee-jerk reaction may be to buy the dip and sell the rally on both sides of the 1.2846-1.3007 spectrum

• NOTE: Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

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