GBP/USD Daily Outlook July 5, 2012

Christopher Lewis

GBP/USD fell for the session on Wednesday as many of the traders will have felt better about taking exposure to the British pound off of their books. This is because of the Bank of England's monetary policy decision later today, and the unknowns that always come with that type of announcement. It should be noted that the central bank is expected to take on more British gilt buying, and at this point in time the market is probably trying to gauge how much of it will be going on.

Ironically, the more bond purchases that the central bank does - the more likely the Pound is to gain. Even though this is quantitative easing of sorts, the fact is that the Pound has been suffering because of the strains on the British banking system. With this in mind, it makes sense that the sense of relief could push this pair higher. However, we don't know how the market is ever going to react at a time, so observation is probably the best policy. Adding to this is the fact that the nonfarm payroll comes out on Friday, and this sets up for a potentially dangerous session.

Tight consolidation and a possible triangle


With the move down on Wednesday, it reinforced the idea of support at the 1.56 level. This should go down as low as 1.55, and as such falling from this level will more than likely be a result of a central bank announcement, and not a sudden shift in sentiment. On the upside, we can see that the 1.57 level is the beginning of serious resistance, and that resistance runs all the way up to 1.58 or so.

GBPUSD Daily 7512

The formation that we currently see in this marketplace does look quite a bit like an ascending triangle. It is because of this that I believe that a break of the 1.58 level would be an extremely strong signal that should send this pair up to the 162 level or so. In a lot of ways, I look at this pair as a binary trade. If we close above 1.58, I am buying and holding on for another 400 pips or so. If we close below the 1.55 level, I believe we will retest the bottom at the 1.5250 level. In a lot of ways, this is simple consolidation that I will follow on a breakout - one of my favorite types of trades.

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.

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