On Friday's trading session, the GBP/USD experienced a slight rally as the area just above the 1.19 handle provided some support. However, it's important to note that the market has been drifting lower for some time, and it's likely that aggressive selling will continue.
The 50-Day EMA is positioned just below the 1.21 level, while the 200-Day EMA is just above. The market is currently trying to determine its longer-term direction, but the recent downward drift suggests that trouble may continue. The 1.19 level is a psychologically significant figure, but this extends down to the 1.1850 level, where significant support has previously been seen. If the market were to break below this level, it could result in a move toward the 1.15 level.
If the market were to break above the 1.22 level, it could result in a move toward 1.24. However, the 1.24 level has previously seen a double top, which could result in significant selling pressure. Breaking through this level, along with the 1.25 level, would require a significant amount of momentum and a major shift in fundamental analysis.
Choppiness Ahead
- Given the current uncertainty in geopolitical, economic, and volatility risks, it's difficult to imagine a situation where the US dollar would significantly decline.
- Therefore, it's likely that rallies will be faded going forward.
- However, the Bank of England has recently suggested that the interest-rate situation in the country may be stronger, although the Federal Reserve is also looking at "tapering for longer."
In summary, the British pound is likely to remain volatile in the short term, with the market drifting lower and support levels extending down to the 1.1850 level. Breaking through significant resistance levels such as 1.22 and 1.24 could result in a move higher, but this would require a significant shift in fundamental analysis and a massive amount of momentum by the trading community to push the pound up through that level.
All things being equal, it’s very likely that we will continue to see the US dollar strengthen over the next several months, but the momentum will not be like it was last year without some type of major “risk-off event” in financial markets globally. Expect a lot of choppy behavior, so you are probably going to be better served focusing on short-term charts, with an eye on the longer-term daily timeframe.
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