- During the Wednesday trading session, the GBP/USD witnessed an initial plunge, revisiting the 1.2650 level.
- This particular level has a history of providing significant resistance, hence the anticipation of a 'market memory' response. The expectation is that buyers will reenter the scene, especially given the strong uptrend in which the market has recently been embroiled.
- The Bank of England remains steadfast in its commitment to combat inflation, a stance that should maintain a level of strength in the pound over a long-term horizon.
However, it stands to reason that a pullback was inevitable – if for no other reason than the principle of gravity. Markets can't continually ascend or descend, and in this case, it appears we are set for a rise in the long term. The 50-Day EMA is ascending, with an interception closer to the 1.2575 level likely if the current decline persists. Conversely, should we see a rebound at this juncture, it's conceivable the market could approach the 1.2750 level and perhaps even the 1.2850 mark thereafter. If fundamental news remains constant, there's potential for the British pound to touch the 1.30 level in the long term. Given the pervasiveness of inflation, central banks will have to maintain a tight policy stance. As it stands, the prevailing sentiment is to 'buy on the dip.'
Market Participants Should Remain Watchful
Should the market break down below the 50-Day EMA, there's a possibility that it could decline to the 1.2350 level, near the 200-Day EMA. However, such a development appears improbable in the short term. As such, traders should exercise caution and avoid putting on huge positions at this point. The expectation is that many will start to seek buying opportunities as the British pound continues its long-term ascent.
In the end, this market isn't one to consider for short selling, at least not until we witness a breakdown below the 1.2350 level. Such a scenario doesn't appear likely in the near future. Consequently, the long-term outlook remains bullish. That being said, it's important to acknowledge that getting involved in this market will require patience and a keen eye for value. Despite short-term fluctuations, the British pound's journey appears to be one of an upward trajectory. Market participants should remain watchful and wait for the buying opportunities as they appear.
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