GBP/USD looks absolutely horrible at this point. Granted, we're still within the consolidation range of the end of the Thursday session, but the action for the day was very poor indeed. The fact that we initially spiked all the way to 1.57, and then it ended up at 1.55 doesn't bode well for this market going forward.
The shape of the candle for the session says at all, it's a shooting star. Essentially, the British pound simply could not hold its shape against the US dollar. The "risk off" trade was back in vogue after the ECB failed to come up with any new simulative plans. Adding to this, the Bank of England had a very dovish announcement as well, and it looks like we are getting ready to test the bottom of this recent consolidation zone.
1.54 to 1.55
The cable pair looks very vulnerable at this point, and I think that the support level that starts at 1.55 extends all the way down to 1.54. Based upon a daily close below that 1.54 level I would become aggressively short of this market and aiming for the 1.5250 level.
This pair does tend to follow risk appetite, and it is very obvious that risk appetite took a serious hit on Thursday. The nonfarm payroll numbers will of course have a major effect on it, but at the end of the day we should have more clarity where this pair wants to go.
There is a bit of a perverse logic making its rounds around the currency markets right now, that suggests that a poor jobs number could actually be positive for risk appetite. The thinking is that the Federal Reserve will be forced to act quicker if the employment looks weak. Is because of this that we think this pair will fall drastically if the jobs number comes out stronger than expected. Right now, the consensus for the number is 100,000 jobs added.
It is because of this twisted logic that we are probably best served to stay out of the market for the next 24 hours. However, the daily close should make things much clearer at this point in time. I believe based upon the Thursday candle that selling the rallies in this pair is probably the way to go going forward. However, it should be noted that the Friday announcement could certainly change that in an instant.