GBP/USD Forecast: Cautious about Position Sizing

The British pound initially tried to rally during the trading session on Friday but gave back the gains above the 1.31 handle. 

At this point in time, we have seen a complete collapse from the initial surge higher due to rumors that the French were working on some type of compromise when it comes to fishing rights with the United Kingdom. Yes, we have gotten to the point where we are paying attention to headlines about fishing when it comes to Brexit.

Looking at this chart, the 1.30 level underneath is important, as it is a large, round, psychologically significant figure, and an area we had broken out of previously. I think this chart heading back towards that level suggests that we are still in an area of significant noise, and that the 1.30 level will cause a certain amount of hesitation. If we break down below there, then the market is likely to go looking towards the 50 day EMA, which of course is a fairly widely followed indicator.

The 50 day EMA sits just below the massive and impulsive candlestick from Wednesday, so that also has a certain amount of importance attached to it. At this point time, I think that we will eventually find buyers in that place is probably just as good as any other. We have been in a bit of an upward channel for some time, so it looks as if we are going to follow that as well, so I think it is only a matter of time before we get involved again to the upside. The stimulus situation in the United States is finally starting to move the markets even further, as we have no clarity when it comes to the process, and although most people think that it is only a matter of time before we get that stimulus, the reality is that the time between now and then could cause a lot of issues. Look at this chart, it is difficult to see that we would change the overall attitude given enough time though, as we have seen such a nice move higher. Furthermore, hope burns a terminal when it comes to Brexit, so that is worth paying attention to. I think eventually we got a nice buying opportunity, but I am going to have to base upon a daily candlestick. You also have to be cautious about the position sizing, considering that the random headline could cause this market to go ballistic.

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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.