Trade of the Day – British Pound – February 19, 2016

Traders should continue to focus on the GBP/USD and the EUR/GBP. The current chart patterns suggests that the Forex pairs may be setting up for high volatility plays. The catalyst may be the negative vibe that is coming out of the Brussels Summit.

Earlier today, the European Union summit to negotiate new membership terms for Britain was forced into extra time as Prime Minister David Cameron struggled for a deal he could sell to skeptical British voters in a referendum.

A senior EU official said talks were at a “critical” juncture after all-night negotiations followed by a day of private meetings to try to narrow remaining differences.

EU officials said the main outstanding problems involved Britain’s demands to curtail welfare benefits for migrant workers from other EU countries, although other snags remained.

“Negotiations are continuing into this evening. A cabinet meeting won’t be possible tonight. One will be held if and when a deal is done”, Prime Minister David Cameron said.

If an agreement is not approved by all 28 EU Member States at this summit, the Sterling would correct sharply against both the U.S. Dollar and the Euro.

GBP/USD

The GBP/USD is already showing signs of weakness with the market trading below a key short-term retracement area at 1.4372 to 1.4303. A sustained move under the Fibonacci level at 1.4303 will indicate the selling is getting stronger. The trigger point for a break out to the upside is the 50% level at 1.4372.

EUR/GBP

The EUR/GBP is also showing signs of strength with the market consolidating above the recent low at .7694, but below the key retracement zone at .7795 to .7819.

A sustained move over the 50% level at .7795 will be the first sign of strength. The trigger point for an acceleration to the upside is the Fibonacci level at .7819. A sustained move under .7795 will indicate that sellers are coming in.

The EU decision is a big event and should not be taken lightly. If the negotiations fall apart, the British Pound could plunge considerably against the U.S. Dollar and the Euro. If there is a deal then look for a slight recovery, but the way of least resistance for the Sterling is to the downside.