Nov 20 (Reuters) - The pound rarely strays above 1.2000 versus the euro and each time it has done so since 2017 there has subsequently been a big drop. This is a golden opportunity to hedge the risk that happens again.

Speculators might also take advantage of this rare rise for the pound but it is those who need to hedge who would be wise to take advantage of what may prove to be a very brief window for them to act.

Since plunging to 1.0743 in 2017 following Brexit, the pound has only risen over 1.2000 in nine of the 87 months that have passed, which includes the last three months.

Excluding this year, the longest period of trading around 1.20 was four months in 2022 when it reached 1.2187, and that was followed by a drop to 1.1275. The pound slumped to 1.0524 following a brief rise over 1.2000 in 2020.

When the pound peaked in 2020 and 2022 the rally had become stretched above the top of the 20-month Bollingers and is once again overbought, which significantly heightens the risk of a reversal.

EUR/USD's failure to break out has one likely outcome

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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

((jeremy.boulton@thomsonreuters.com))