By: Christopher Lewis
The GBP/USD pair has been very tight lately, and the market has been the haven of scalpers. The biggest problem that the British face is the fact that they are so closely tied to the European Union. The banks in the United Kingdom are more often than not knee-deep in bonds markets, loans to business, and sometimes even mortgages in various European countries.
The cable pair will often act as a proxy for global risk, and as a result will often rise and fall with equity markets as they undulate. The market has been very sideways over the last month or so, and seems to be “stuck” at the moment. In my opinion, I think it has something to do with the fact that the Brits are stuck with the Europeans. In other words, even though the British Pound is a different currency than the Euro, they are inevitably tied together as the two economies will send so much money back and forth. With Europe being over 40% of the customer base for the British, you obviously cannot thrive if that many of your customers are feeling the strain. Again, while the UK itself is doing well enough – it is heavily exposed.
Bouncing along the 200
The pair has been bouncing along the 200 day EMA for about two months now, and it is running along the 1.58 level as we go sideways. The action over the last couple of session has been bullish, but the end of the Tuesday session saw a bit of a pullback. This market has been stuck between the 1.58 and 1.60-ish levels for some time now, and it is because of this that I think we are getting ready to have yet another pullback in this pair.
The market is far too tight to suggest a longer-term trade yet, but this could be introduced under two conditions: A daily close above the 1.6050 area to buy it, and a daily close below the 1.58 level in order to sell it. However, in the mean time, I am looking to sell this pair for a short-term trade on signs of weakness, which we are getting right away.
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I don’t often scalp, but this market is so evenly balanced at this point that I feel compelled to.