Whilst swirling Brexit fears have seen the Cable enter a highly volatile and uncertain period, a number of factors are indicating that the pair is unlikely to break through the recent lows. In particular, the shadow of bullish bat pattern could see the pound claim back some of its recent losses. Additionally, RSI and stochastic oscillators seem to support the move back to the 1.4341 mark.
Primarily, the presence of a bullish bat pattern on the daily chart is the first clue that a reasonable rally could be set to begin. Presently, the Cable appears to have found support around the 1.4100 handle. Coincidently, this is in line with where we would expect to find the final leg of a bullish bat formation to end. As a result of this, the pair should be making a move higher once again and this looks to be already occurring.
Aside from the bat pattern, stochastic and RSI oscillators are indicating that the pound is ready to make a bit of a recovery. Specifically, the stochastic oscillator is presently highly oversold whilst RSI is verging on entering oversold territory. As a result, the current support at 1.4100 could prove to be difficult to break. Moreover, support here has weathered multiple attempts to break through over the past few weeks but it has remained firm.
However, important to note here is the current EMA activity on not only the daily chart but the H4 and H1 charts as well. On said charts, the 12, 20, and 100 period EMA’s remain highly bearish which could facilitate a downside breakout. However, given the ADX reading of just 31.09, momentum could be somewhat lacking and therefore unable to push the Cable lower again.
Of course, much of this will be moot if the FOMC follows through with its recent threat of a rate hike. In this event, the Cable could be set to seek support as low as 1.3837 which could be on the cards given the rampant volatility being inspired by the Brexit referendum. However, there remains the possibility that the Fed once again fail to fulfil its promises and the rate is unchanged. If this eventuates, there is little doubt that the Cable will move to test resistance at 1.4341 or 1.4507.
Ultimately, the impeding Brexit referendum and FOMC meeting are dictating much of the movement for this pair. However, in the likely event the Fed fails to hike rates, the technicals discussed here could mean that there is a significant degree of upwards mobility in the cards. Additionally, the combination of bullish technicals could limit some of the fallout in the event a rate hike does occur. This being said, the extreme volatility that the Cable has been experiencing recently could take everyone by surprise.