GBP/USD Forecast: Pound Pulls Back from 200-Day EMA

Christopher Lewis

In general, I think you can count on a lot of noisy behavior, but I still favor the downside overall.

The British pound initially tried to take out the 200-day EMA on both Thursday and Friday, and therefore sold off quite a bit. That being said, the market has a significant amount of support near the 1.36 level underneath, which is a large, round, psychologically significant figure, and an area that has been tested multiple times. At this point, you could make an argument for a descending triangle, which is a sign that we could break down.

At this point, if we were to break down below the 1.36 handle, then it is likely that we would go looking towards the 1.35 handle initially, which would open up a move down to the 1.30 handle. That is a region that will attract a lot of noise and headlines, which is something that is potentially important. That being said, it does not necessarily mean that we are going to break down rather quickly, but there is a certain amount of downward pressure. Short-term rallies continue to find signs of exhaustion that people will sell into, as the 50-day EMA above continues to show signs of resistance.

The 50-day EMA breaking down below the 200-day EMA forms the so-called “death cross”, which is a longer-term bearish signal. At this point, the market is likely forming a bit of a topping pattern, but we have not kicked that off yet. That being said, when I look across the markets, there are a lot of signs that the US dollar may strengthen, and this will translate into a lower British pound against it. The market has been very noisy, but it does continue to drop.

To the upside, if we were to break above the 1.39 level, then the market could go looking towards 1.40 handle. If we break above there, then the market is likely to go looking towards the 1.42 handle after that. In general, I think you can count on a lot of noisy behavior, but I still favor the downside overall. When you look at the chart, you can see that we have made a series of “lower highs” going back several months. If we get a major “risk off” type of attitude in the markets, that could push this market lower as well.

GBP/USD

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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