- The GBP/USD has rallied significantly during the trading session on Thursday, but it’s also worth noting that we have been all over the place.
- This has been one of the most volatile days that I can remember.
- It all started with a rumor that came out that the British government was thinking about scrapping part of the tax scheme being the cause so much damage to the British pound over the last couple of trading sessions.
Having said that, the CPI numbers came out in the United States later, reading 0.4% month over month instead of the anticipated 0.2%. This had the US dollar strengthening quite rapidly, as it suggests that the Federal Reserve is going to remain tight for the foreseeable future. However, Wall Street went nuts shortly after that and started buying up all kinds of risk assets as traders started to read between the lines of the announcement. I don’t really think much has changed other than we have done a lot of damage to a lot of trading accounts during the day. The 50-Day EMA sits above and is offering resistance, followed by the crucial 1.15 level.
Waiting for Signs of Exhaustion to Short this Market
If we break down below the bottom of the candlestick for the trading session on Thursday, then it’s likely that we could go down to the 1.10 level, which is a large, round, psychologically significant number in an area where we have seen a lot of support at that area. Having said that, we break down below there, then I think it opens a move down to the 1.05 level. I do not think that the trend for the British pound has changed, and I think that it’s only a matter time before I will be selling again. However, it’s obvious that momentum and a bear market rally has commenced. Any signs of exhaustion open the possibility of a shorting set up, as the US dollar should continue to see plenty of interest.
If we do break above the 1.15 level, then I will be paying close attention to the 1.20 level, which is where I would assume that the trend has changed if we can get above there. I do believe now, this still remains a “fade the rally” situation given enough time.
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