GBP/USD Forecast: 1.27 Crucial Target

|

The British pound fell during the trading session on Friday, perhaps in reaction to the stronger than anticipated jobs figure coming out of the United States. This had people betting that the Federal Reserve wasn’t going to cut interest rates, and that drove the value of the US dollar higher. With that, the British pound of course fell against that very same currency, but later in the day Jerome Powell suggested that the Federal Reserve was going to do whatever it takes to keep the market afloat, so therefore we have turned around late in the session.

We are currently testing the 1.25 handle, which of course is a large, round, psychologically significant figure. That’s an area that has been supportive in the past, and the fact that the wick is starting to show signs of growing at the end of the day also suggests that we are about to get a bit of a bounce. However, the Brexit makes the British pound a less than attractive currency in general, so if this market rallies, it’s going to be in spite of the British pound, not because of it.

The Federal Reserve cutting interest rates should continue to put downward pressure on the greenback, but I also recognize that if this market does in fact rally significantly, the reality is that it may underperform other currency such as the Euro or perhaps even the Aussie dollar. It doesn’t mean we can’t rally from here, and it certainly doesn’t mean we can’t buy this market on a break above the highs from the Friday session, as it is a potentially strong reversal signal. It just simply means that it may not rally as quickly as some of those other currencies.

Advertisement
Great trade opportunities are waiting - don't wait to profit from this pair!
TRADE NOW

Remember, the Federal Reserve gets what it wants over the longer-term, and what it wants right now is a softer US dollar. It is probably only a matter of time before the Federal Reserve overwhelms the other currencies with a flood of dollars, and therefore I like the idea of shorting the greenback against several of the other currencies, but obviously timing is a bit of a challenge. If we do rally from here, I suspect that the 1.27 level will be very crucial as a target, but it certainly looks as if it’s where the market will probably find the next large amount of sellers out there. The alternate scenario of course is that we do in fact continue to break down, and if we break down below the 1.2480 level, it’s possible that we could then go down to 1.2250 but after the Friday session I think the buyers are starting to pick up value.

GBPUSD

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.