Interesting times in the $uros to poundsr which reacted to yesterday’s UK budget which effectively declared the UK to be bankrupt and drowning in a sea of debt.  As a consequence the pair closed the day on a wide spread up bar of almost 200 pips thereby penetrating both the 9 and 14 day moving averages and adding significant momentum to the re basing process which seems to be occurring in the 0.88 price point.  Of equal significance is the fact that this candle has now provided us with a strong bullish engulfing signal and, in addition, has also penetrated above the resistance created back in late February and early March.  For any sustained move higher we will need to see this signal confirmed in trading today and coupled with a move back through the 40 day moving average.   A slightly worrying sign which runs counter to the above analysis is that Europe has released a raft of positive $undamental newsthe economic calendar this morning, and yet the euro against the pound has failed to benefit which is an interesting development.  The problem for us as currency traders at the moment is clear, in that we are trading in uncharted territory where the financial backdrop is at an extreme, and hence any “normal” price action is distorted by the “abnormal” circumstances.  Whilst it would be easy to view this signal in isolation and simply trade according, ie take a long position, one does have to try to analyse the broader picture and wait for this week’s close, particularly after such horrific announcements both from the UK and the IMF.  The key at the moment is to try and anticipate the view of the currency markets and, in particular, which currencies are viewed as the lesser of two evils, and in my opinion the jury is still out.

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