GBP/USD Forecast: Hanging onto Gains - 6 April 2020

The British pound fell during the trading session on Friday, breaking down below the 1.2250 level at one point before recovering slightly at the end of the session. Ultimately, the market looks very likely to continue to rollover a bit, as the market has fallen several times, but bounce. However, Friday was a little bit different in the sense that we hung onto quite a bit more losses in the British pound. Ultimately, I think this is the beginning of a potential break down, but if we were to turn around a break above the 1.25 handle on a daily close, then we could very well go looking towards the 200 day EMA after that.

To the downside, if we do continue the downward pressure and break down below the bottom of the trading session on Friday, it’s very likely that we go down towards the 1.20 level underneath that. While I do believe that area could offer a bit of support, don’t be surprised at all if we break through there, especially if there is some type of major “run towards safety”, which would probably be in the form of US treasury markets. Furthermore, the British economy is probably going to struggle going forward, as the UK is certainly struggling with very miserable fundamentals and of course we still have to worry about the Brexit situation which has been put on hold due to the coronavirus outbreak.

While the US economy is slowing down, the benefit of being the United States is that it is the world’s reserve currency, so there is going to be a certain amount of a bid for that currency regardless of what happens. Because of this, I do think that we are likely to see a break down more than a break higher of this currency pair, but it should be noted that you could even start to make an argument for a bullish flag for a much bigger move longer term to the upside. After a precipitous fall like we had recently seen in this market, it’s not a huge stretch of the imagination to think that perhaps we will have to test the lows again in order to form a longer-term bottom as well, so at this point although I wouldn’t necessarily say I’m bearish of the British pound, I don’t necessarily trust the upside at this point in time.

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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.