GBP/USD Forecast: Market Looks Threatened

Christopher Lewis

This market looks as if it is going to continue to slump.

The British pound initially tried to rally during the trading session on Thursday but found the 50 day EMA to be a bit too much to get above. If we were to break above there, then the market probably goes looking towards the highs of the week, which would be just underneath the previous uptrend line. That being said, the fact that the market closed in the form of a shooting star suggests that the market may have more selling pressure ahead of it.

This is interesting considering that the 1.3750 level had previously been rather supportive as well as resistance. The resistance level should now have a certain amount of “market memory”, and the fact that the 50 day EMA is going flat suggests that we are going back and forth. All things being equal, if we were to break down below the recent candlestick, the market could go down to the recent low, and then perhaps down to the 1.35 handle after that. That of course is an area were a lot of interest would be found, and of course the 200 day EMA comes back into play as potential support. In fact, the 1.3750 level extends all the way down to the 1.35 handle as a major support zone. Because of this, even if we do break down, I would not necessarily be a seller of this market, at least not until we break down below the bottom of that zone.

Nonetheless, this is a market that looks as if it is going to continue to slump. This will work out one of a couple different ways: it will either give you an opportunity to short the British pound against other currencies, or perhaps buy the US dollar against another currencies. This is because I see so much noise in this particular market that I would not try to get involved directly. However, you can use this as a technical indicator for other markets, and therefore a way to gauge as pound strength in general.

If we break above the top of the candlestick from the Wednesday session, that might send the market back towards the previous uptrend line, for a short-term rally. If we can break above there, then it is likely that we could take out the 1.40 level in order to go to the 1.42 handle.

GBPUSD

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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