After the announcement of results of the referendum from 23 June 2016, in which Brits voted 51.87% to leave the EU Member States, the market broke very important support at the 1.3900 level. As a consequence of subsequent falls price of cable reached lowest level since May 1985.
From technical point of view on current market situation level 1.3900 could be defined as the neck line of Head & Shoulders formation. Taking into account the range measured from head to neck, we come to conclusion that potential drops could reach even around 0.6200.
However taking into account that according to principle of changing poles, any level that has been a support in the past after being broken should be tested as a resistance, in near future we would expect growth and re-test of the already mentioned 1.3900 level, which coincides with 38.2% Fibonacci correction.
Looking at daily chart we will note that since October last year market was moving in a consolidation. As a result of April’s speech of Prime Minister of the United Kingdom, Theresa May,announcing early election, we observed strong appreciation of sterling pound, resulting in breaking the upper limit of consolidation. Although after such a strike, technically we could expect continuation of growth at least to 1.3450 due to result of last week’s pre-election parliamentary elections in which Theresa May did not win the expected majority in the parliament and will not be able to rule independently, we observed dynamic depreciation of GBP and rapid declines breaching 1.2750.
On H4 chart, we notice that even the market has not reached the nearest significant support at 1.2600, today first signs of bullish reaction occurred.
If upward trend continues, we would expect a re-test of 1.2765 which coincides accurately with a 38.2% Fibonacci correction although a first supply response could be expected in the local (blue) resistance level.