The British Pound (FXB) got absolutely hammered at Brexit. Has FXB made a bottom, and more importantly, is there a decent long side trade to be had in FXB? The quick answer is yes, yes but with the caveat that there is a very good chance that FXB will test its lows and shakeout the early buyers before the People Who Can have accumulated a large enough position to mark up the price.
The FXB Market Location Page is showing an overbought condition without sufficient follow through in volume to keep the overbought condition going. What cannot go up must come down and that is what we are expecting over the next several trading sessions.
The Volume Spread Analysis Chart (below) puts things in Wyckoff context. The Stopping Point is almost always a super important price level going forward. It is the point, after all, where big money put itself right in front of the speeding freight train of falling prices. The People Who Can said “this is far enough for now” and had the juice to make it stick.
When the extreme selling pressure is relieved at the Stopping Point short covering kicks prices back up for a few sessions but the absence of new buying lets all the air out and prices capitulate in a Selling Climax marked by heavy volume. An Automatic Reaction always occurs after a Selling Climax. The phases after the Automatic Reaction are intense accumulation within a range established by the People Who Can. For whatever reason they have determined that this trading range is genuine value and they will push and pull prices to accumulate as many positions as they can within the range.
There is of course no precise script for what follows but the reasonable expectation is that the lows and highs of the range will be tested as many times as necessary until the People Who Can determine that a markup can be attempted without serious opposition. Our early clue will be a cluster of green volume accumulation bars on rising prices. That’s when we want to go long.
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