- The GBP/USD started the week with a gap lower during the Monday trading session, but it later exhibited signs of resilience.
- Nevertheless, it ultimately sold off again, approaching the crucial 1.21 level as of the time of writing.
- If the pound breaches this level, there's a possibility it could descend further toward the substantial support at 1.1850. While this major support level is likely to be tested, it might take some time before it comes into play.
It's essential for traders to understand that, currently, short-term rallies in the British pound are seen as opportunities to sell. This cautious approach stems from concerns regarding the UK economy, which is potentially teetering on the edge of stagflation issues. Moreover, it remains susceptible to issues emanating from the European Union. In addition to these factors, the US dollar is gaining attraction as a safe-haven currency, particularly as interest rates in the United States continue to rise. The strengthening of US interest rates makes the US dollar more appealing to investors, prompting them to seek the best treatment for their money. Given the recent breach of significant support levels, it's highly probable that the British pound will continue to face downward pressure.
The Market Will Continue to See Downward Pressure
Another significant development to note is the impending "death cross," where the 50-day EMA is on the verge of crossing below the 200-day EMA. This occurrence is considered a highly bearish long-term signal, indicating that many long-term traders are opting for short positions in this market. Whether or not the British pound can break below the 1.1850 support level remains uncertain. However, it's a discussion for another day, as we are currently about 300 pips away from that potential target and support zone.
In summary, the British pound is encountering a challenging period marked by economic uncertainties. Short-term rallies in the pound are being approached with caution, and the recent shift toward the US dollar as a safe-haven currency is adding to the downward pressure on the pound. The imminent "death cross" also signifies a bearish sentiment in the long term. While the 1.1850 support level is a conceivable target, it may take some time before the market reaches that point. Nonetheless, I think we get there, but it's going to be a while before that happens. The market will continue to see downward pressure and therefore I will continue to follow it.
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