The GBP/USD pair looks absolutely horrible. The action in this market has been straight down for several weeks, and there seems to be no real let up in it. The gap from the weekend was based upon the rumors of a European bailout fund for banks, but there is no confirmation of this rumor. This lead to a weakening of this market yet again and the daily candle for Monday is now a shooting star.
The candle suggests that the pair is looking even weaker that I thought, and the fact that the bulls couldn’t even stage a real bounce at this point really has me thinking this pair has a much longer way to fall. The Pound is going to suffer because of the United Kingdom’s large amount of exports to the European Union. With the EU going into recession, this means that 40% of the UK’s exports are heading towards a broke customer.
61.8%, 1.5650, and massive support
The 1.5650 level is an obvious support level at this moment, and you can see how it has held for some time now. This is what makes the fact that the 61.8% Fibonacci retracement level there so interesting to me. Quite frankly, if there was ever a place that a bounce could be expected – this is it. However, the action hasn’t been very impressive, and because of this I have to think that this pair is about to do a nose dive.
However, the confirmation hasn’t happened yet. This keeps me from shorting this pair at the moment, but in a moment of panic via the European situation, we will see massive amounts of flows into the Dollar. In this scenario – the Pound will get hammered as the floodgates could open.
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The breaking of the 1.5650 level on a daily close will signal another run lower with targets of both 1.55 and 1.53 in the near term. The pair could fall even farther, but I have to think that eventually the Pound will be a bargain that traders want to own. On a close below the 1.5650 level I am selling and holding until at least 1.55 as the weakness could send us there in a single session, and if this happens – 1.53 could be had in a flash as well. I am also selling rallies at this point.