The GBP/USD has drifted a little bit lower during the training session on Thursday, as we are hanging around the 1.15 level. The 1.15 level is an area where we would see a lot of noise, especially as it is a large, round, psychologically significant figure. The market is most certainly in a downtrend, but it can only fall for so long before we get a little bit of a bounce.
Any bounce at this point in time should be a nice selling opportunity, and therefore I think that the 1.1750 level could be an area where we would see a certain amount of resistance. Any signs of exhaustion in that area I will not hesitate to short. After that, we have the 1.20 level, and of course the 50-Day EMA. Ultimately, we are threatening a major support level, which sits just below the 1.15 level. If that were to get broken through, it’s likely that we would see a further deterioration of the British pound, something that is quite easy to imagine in this economic environment.
Noise Ahead
With the British economy likely to suffer a recession this year, it is probably only a matter of time before massive quantitative easing returns to the British Isles. That doesn’t mean that we drop right away, but I do think that we have further to go. Breaking through a major support level is a process, and not a sudden instant unless of course, we get some type of fundamental shift or headline that crosses the wires.
Regardless, I think the only thing that you can count on is a lot of noisy behavior, and therefore you need to be cautious with your position size. This is especially true in this type of environment where there are a lot of people looking at a potential apocalypse, especially in the UK and the EU. If we start to see this market breakdown from here, then the bottom could follow but I think at the very least we need to go back and forth to show signs of digesting some of the recent losses. The US dollar is a little overextended, and we are seeing it behave the same in general, as the US dollar had been on an absolute tear lately. At this point, I’m hoping for a bounce that I can take advantage of sometime next week.
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