Potential signal:
I would be a seller of the GBP/USD on a move below the 1.2475 level, opening up a target of 1.2350 below. The stop loss would be near the 1.2560 level.
- The British pound has initially pulled back just a bit during the trading session on Tuesday.
- Ban at the end of the day. I don't read too much into it because we continue to dance around the 50 day EMA and of course the 200 day EMA.
- The 1.25 level underneath is a significant amount of support just waiting to happen.
So, if we were to break down below there, then I think that the British pound will continue to struggle in general. If that happens, I suspect that we will see the 1.24 level eventually targeted short term rallies will almost certainly run into a lot of resistance, especially near the 1.26 level, an area that has previously been very resistant in the past. Market memory is more likely than not going to come into play at this point in time, and with this, I think you need to look at this area with suspicion.
In general, this is a market that is going to continue to look at the interest rates in America and take its cues from there. While the British pound itself is not necessarily a weak currency, the reality is that the US dollar has been like a wrecking ball for almost everything else in this environment. I think the play would probably be to short the British pound.
On a Break Down…
If we break down below the 1.2475 level. However, the downside is probably somewhat limited due to the fact that we have seen such a huge bounce from the previous swing low. Although we have seen such a big bounce, we have not made a new swing high. So, I suspect that this has just been a bit of a recovery and we will have to keep all eyes on the US bond markets in order to sort out where interest rates in America are going. So far, they don't look like they're going to go much lower. And that is greenback positive.
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